It’s the online business equivalent of jeans that don’t make your butt look big. Social media ROI is everyone’s holy grail of the moment.
And it’s easy to see why. If a business is going to put the time, effort, and attention into social media marketing, it would be nice to think we’d actually get some sales out of it.
In other words, we want a return on our investment.
Sonia Simone talked recently with Sean Jackson, Copyblogger Media’s CFO, about the ROI of social media. She expected to hear one answer, but was surprised to get something very different.
Here’s how it went down.
Sonia: OK, so as you know, everyone is looking for how to improve the ROI of their social media marketing. What advice do you have for them?
Sean: Social media marketing is never going to produce an ROI. No marketing will.
Sonia: (Long pause) You’re not drunk right now, right?
Sean: No of course I’m not drunk right now, why would you ask that?
Sonia: Well, you did just unlock the “Wino” badge on FourSquare. Just saying.
Seriously, Sean, we can’t tell people there’s no ROI in marketing. What’s the point of even doing marketing if there’s not a return on the investment?
Sean: OK, can I be the money guy for a minute?
Sonia: Yes, if you absolutely have to.
Sean: All right. As you know, I talk with a lot of businesses. And I’m seeing ROI taking on a mythical status in marketing — a benchmark used to compare every decision to some financial metric of return.
So organizations create entire processes around the idea of measuring this performance index, all so that marketing professionals can “justify” their activity.
Marketing ROI has become so important that no one questions its validity
But the truth is, marketing will never produce an ROI.
Sonia: OK, you’re still sounding insane to me.
Sean: I’m not done yet.
Marketing will never produce an ROI because ROI is not what you think it is.
A pure definition of ROI is simple to quantify.
ROI = (Gain from the Investment – Cost of Investment)/Cost of the Investment
The problem for marketing professionals is that marketing activity is not an investment.
An investment is an asset that you purchase and place on your Balance Sheet. Like an office building or a computer system. It’s something you could sell later if you didn’t need it any more.
Marketing is an expense, and goes on the Profit & Loss statement.
Sonia: You’re going to ask me to understand accounting stuff again, aren’t you?
Sean: I have confidence in you, you can handle it.
Unless your organization uses Enron style accounting (circa 2001), every marketing effort you pursue is an expense in time, money, and resources … it’s not an accounting asset.
But the bigger question is why do so many people use the term ROI and marketing together? The answer to this question provides insight into how an organization views the role of marketing.
What is the ROI of email?
Quick, calculate the ROI of using email within your organization. Not email marketing, but just the emails you send back and forth to get things done.
Sure, you may know what it originally cost to install your email system, but how do you measure the gain achieved from it?
If you are like most, you don’t know. You probably don’t care.
But the absence of email in your organization would lead to more harm than good. Its “gain” is not so much a measurement of return but an implicit cost of being in business.
Unfortunately, this is not the same view shared by people who use the term ROI when they’re talking about marketing.
Marketing is not something you buy off the shelf
It’s like walking down to the local dealership and saying “I’ll take the 2012 online marketing model with the social media package” — a ludicrous analogy but not too far from truth.
People who use the term ROI see marketing as something to buy.
But smart companies see marketing as an integral part of doing business — a necessity no less important than the company email system, their computers, or their office lease.
Sonia: Sean, we’re a virtual company, strictly speaking we don’t need an office lease.
Sean: Don’t nit pick.
My point is, ROI is the wrong term.
The real measurement of marketing is comparing the net income (revenue minus expenses) by the total revenue generated — in other words, your Profit Margin.
Sonia: So we do get to tell people that marketing is going to make them some money, right?
Sean: Well obviously. Otherwise why would we do it?
Sonia: OK, that’s a relief.
Sean: Marketing is measured against profits, which is a far more meaningful standard than ROI.
But changing an organization’s attitude toward marketing from a measurement of ROI is difficult. It requires a fundamental alteration in the view of marketing’s role.
Marketing needs a new culture
Sonia: Can you talk a little more about what you call the “culture of marketing”?
Sean: Sure, of course.
As the CFO of Copyblogger, I am blessed to work with some of the smartest people in online marketing.
Sonia: Quit sucking up.
Sean: I wasn’t talking about you, I meant Brian.
Sonia: Hm, ok then.
Sean: Kidding aside, it may surprise a lot of readers that as a multi-million-dollar growth-oriented business, our advertising expense is negligible — it’s a rounding error on our P&L.
Sonia: Do I absolutely have to know what a P&L is?
Sean: It would be a good idea. It’s just Profit and Loss. How much we take in and how much we spend.
So anyway, that’s not to say that we don’t measure marketing (we do) or that we don’t spend money toward it.
Sonia: Right.
Sean: But for us, marketing is an inherent cost of doing business and measured against the profit we generate.
It starts with our CEO and permeates our thinking in how we spend our time, resources, and money.
And while we may be exceptional, we are by no means unique.
Most of the brands you love like Apple, Southwest Airlines, or Nordstrom inherently appreciate that marketing is a fundamental part of their business. It gets baked into the products and services — it’s not just a line item on a P&L like the heating bill.
Sonia: Virtual company. No heating bill.
Sean: OK, it’s a line item like the hosting account. Better?
Sonia: Yes, thank you.
Sean: So how do businesses go about creating a culture of marketing? It won’t be easy but this list will help you get started.
Embrace a new definition
Sales generate revenue. Marketing generates profits.
Marketing, including social media marketing, is about efficiency. Marketing is a process of decreasing the time, money, and resources required to communicate with customers and make it easy for them to buy products and services.
The more efficient your marketing is, the more profit you make. That’s what you want to optimize for.
By defining marketing as a function of profits, you create a new perception within your organization about the value of marketing.
Love Thy Customer
Sonia: Now we’re talking my language.
Sean: I thought so. Think of your customers as an audience. That’s not just true for a business like Copyblogger Media — it’s for every business.
Audiences want to be entertained, mesmerized, and enlightened. They want refuge from the status quo — they want to find some solace in the products and services you deliver.
They want a good show, and it’s your job to give it to them.
If you find yourself making decisions that benefit your organization at the customer’s expense, you probably will disappoint them.
So find the one or two things that make them feel special, and deliver those with the flair of an entertainer.
Use measurements that matter
Frequency, reach, and engagement are the modern measurements of marketing. But instead of contrasting them to revenue generated, focus instead on profits and efficiency.
Sonia: You lost me again.
Sean: OK, so if social media marketing is replacing a more traditional form of marketing, document the savings. If sales cycles are decreasing — in other words, it’s taking less time to go from stranger to paying customer, show that. If referrals are up, highlight it.
Measure the ways marketing is making your company more profitable by making the sales cycle more efficient.
Embrace discipline
Discipline is the secret ingredient of success. Disciplined organizations find what works and focus on improving it. They are not distracted by the “new and shiny.”
Sonia: Just so it’s clear for readers, “Organization” can mean a big company, but it can also be just one solo person with a blog and an ebook to sell.
Sean: Absolutely.
Now, a disciplined organization embraces change. But their approach to change reflects the discipline of what works for them.
They test, evaluate, learn, adapt, and modify.
That means you focus on improving what you know works and challenge yourself to make it better by testing new marketing ideas.
Small tweaks can make big changes
Sometimes small changes can generate huge results. Find ways to make small changes to existing processes and measure their impact.
Grand efforts take considerable time and resources. The savvy organization looks for ways to tweak existing processes in ways that benefit customers.
Effective marketing does not require a multi-million dollar ad spend.
Sonia: See, our people never use the expression “ad spend.”
Sean: The point stands, though. Great marketing can come out of small, subtle changes based on customer input and measured for improvement against the status quo.
Sonia: Are you saying we should watch what customers do and then test ways we can improve?
Sean: Yes, that’s what I’m saying.
Filter the fanatics and fools
Sonia: Ha, this ought to be good.
Sean: Well, I’ll do my best.
So we all know that especially in social media, everyone has opinions. Some of those are good and some are foolish.
In marketing, these opinions can be distracting, consuming time that could be applied to more profitable efforts.
This is not to say that opinions don’t count. But building processes that help filter this information may be more important than the opinions themselves.
When possible, respond. When not, ignore. Marketing must maintain a level of discipline to be successful, and filtered opinions can help more than a sea of un-solicited ideas.
Sonia: In other words, listening the wrong voices can tank your business.
Sean: Right.
Sonia: I feel like there’s a simpler way you could have said that.
Sean: That’s your job. OK, moving on.
Create measurable structures
Sonia: OK, I want to hijack this for a minute and talk about the marketing structures we actually use at Copyblogger Media to be able to measure the success of social media marketing.
Sean: That sounds like a good idea.
Sonia: The biggest mistake we see, and the one that makes people think they can’t measure social media results, is that businesses try to complete an entire transaction on a social media platform, like Facebook or Twitter.
Sean: Digital sharecropping.
Sonia: Right. Twitter and Facebook and LinkedIn and Google+ were never intended to be your virtual storefront. It’s not what they were built for and it’s not appropriate.
Instead, you use them as outposts to start talking with people who may eventually become customers.
Sean: You use them to maximize reach and build a case for increased share of wallet.
Sonia: You use them to make yourself interesting and show people you’re a good egg.
Sean: That’s what I said.
Sonia: Ah. Anyway, a lot of businesses use social outposts the same way they use trade show booths — badly. They collect a lot of so-called “leads,” which they either follow up on clumsily or they don’t follow up on at all. Then they wonder why there’s no return.
Sean: Improved profit, not return.
Sonia: Whatever. They don’t make money. Which is bad.
Using landing pages to focus social media attention
The answer is to use social media sites to get attention in the first place, and show people you’re likable and trustworthy. But when someone is ready to learn more about your business, bring them back to an asset you control — bring them back to your website.
More specifically, send them to a well-crafted landing page that’s optimized to get the result you want in that circumstance.
Everything that happens on a landing page can be measured. So you can know precisely how many people sign up to your email list from Facebook, or download a particular version of a white paper from LinkedIn.
Landing pages are the key to measuring the effectiveness of what you do with social media. If you’re having trouble figuring out whether your social media marketing is effective, it’s because you haven’t thought through your landing page strategy.
Sean: Are you going to tell them about Premise now?
Sonia: I wasn’t planning on it.
Sean: But Premise is all about creating strategic landing pages that get the business results you want.
Sonia: Well that’s true. OK, yes, if you want to build more effective landing pages, you should
go check out Premise.
Are you happy now?
Sean: Yes, yes I am. Thank you.
Baking marketing into the business
OK, I want to keep moving. The mistake I see people making is thinking about marketing like some kind of magic pixie dust sprinkled around when the need arises.
Marketing isn’t any less important than the products and services you deliver or the people who provide them.
Sonia: In other words, it’s not some kind of frosting you put on top of the business. It is the business.
Sean: Right. Appreciate that everything your organization does is marketing — from the invoices you send, to the way the phone is answered, to the method of fulfilling your customer’s needs.
Sonia: OK, what’s the one thing that you want people to take away?
Sean: Other than that Premise can help them create a well-optimized program of strategic, effective landing pages?
Sonia: Right, other than that.
Sean: It’s really this:
Forget ROI and concentrate on profits
Thinking about the ROI of social media marketing — or any marketing — makes business owners think that marketing is some kind of slot machine, where they put money in and hope more money comes out.
Instead, think about how you can generate greater profits with your social media marketing by using social media to reduce expenses and increase revenue.
So when you are asked “what is the ROI” on your marketing effort, answer honestly and tell them “zero.” The real measurement of return lies in the profits created from your culture of marketing.
About the Authors: Sean Jackson is Chief Financial Officer of Copyblogger Media, and Sonia Simone is Chief Marketing Officer. Somehow they manage to work quite nicely together, despite the fact that they sometimes seem to speak completely different languages.
Reader Comments (195)
This was an excellent article. I teach Social Media Marketing and think I need to tweak the course material to incorporate this concept. Thanks!
I really like how this post was put together. You brought home the importance of landing pages to measure where everyone is coming from and what they are doing. It’s the best tool we have.
Shifting focus from ROI to profits is a great way to put it, and I think it helps cement the effectiveness of Social Media marketing in my own mind. However I think it will still take some clever convincing to sway my superior to this way of thinking.
I think the whole problem is that managers want a clear view of a muddy picture (haha I don’t like to say marketing is muddy, however it is, as you suggested, over-arching and ingrained).
Thanks for the info. I will be back with a fine tooth comb.
Except marketing’s value as an investment does exist, even if it doesn’t give you a physical asset in the traditional sense. There’s a reason it’s a widespread measurement and that reason isn’t that every marketing professional that uses it doesn’t understand how investment works.
Marketing investments take the form of various intangible assets like mindshare or brand value. These are investments in that they persist but degrade over time, and have an influence on your revenues (i.e. a return). Granted, not all marketing activity creates persistent assets – though that raises the interesting question of why it isn’t – but most modern marketing strategies recognise the importance of building up these assets over time.
Choosing to focus on profits over revenue is misleading – no marketing activity actually affects your profits in the accounting sense beyond the cost of the activity itself. This is because marketing’s effect on the bottom line is in revenue generated; remember that profit is an abstract value one step removed from actual business activity. Really, your new slogan should read “Sales generate revenue. Marketing generates sales”.
Viewing marketing as an implicit cost of doing business (traditionally referred to as a fixed cost) is also inaccurate. Fundamentally marketing is something that you can choose to spend more or less money on and gain correspondingly greater or lesser returns; as with all business where the balance lies is an optimisation problem. It would be nice if people regarded marketing as necessary to doing business because then they’d have less problem spending money on it, but that doesn’t actually make it true.
I can get behind the idea that many businesses need to focus less on trying to establish exactly what the ROI actually is, but that’s not because ROI is an inappropriate measurement – it’s because it’s hard to measure it exactly in most marketing contexts. Promoting marketing as anything other than an investment in short- and long-term sales prospects is inherently misleading.
Couldn’t agree more. This kind of argument goes down well in the echo chamber. Tougher to stand it up in the C-Suite.
Maybe that’s why people in C-Suites are typically completely clueless at social media marketing, while the rest of us are building businesses out of “nothing.” Fine with me.
I see Dave’s point, and there is a tongue-in-cheek element to the post (starting, obviously, with the subject line) that requires an empty cup mindset.
Luckily, my clients are agile small business owners who are not only willing but eager re-make the rules; to distort reality in order to assuage their confusion and feel warm and fuzzy about jumping into SMM.
Unfortunately, many C-suite ‘cups’ are stuffed with cotton. Not my battle.
Thanks for getting it, Jeff. 🙂
“Not my battle,” so smart. I have too many of my own battle wounds trying to fight that one.
Yeah, but they’re not “clueless” about running a business.
I feel like this POV puts unnecessary burden on people who, because of their talents and or role (like answering to shareholders or determining if they’re able to meet payroll) are more predisposed to ideas like “investment” and “bottom lines.” And I feel like it’s a little arrogant to demand that the C-suite comes up with an entirely new set of standards to judge the performance of a certain team.
If they ask for “ROI” they might as well be asking “am i costing this company by allocating these smart people to this project instead of somewhere where they could be contributing more to the bottom line.” It’s a question they have to ask and I think there’s something to be said for answering it on their terms.
I feel like this is just walking up to your boss and saying “oh, you wouldn’t understand.”
Sean speaks that language of that person as well as anyone — he’s giving you ammunition for that conversation here.
The ideas from this post came from a talk Sean gives to business leaders — this actually is a conversation you can have with them.
We don’t demand anything of the C suite (or anyone else). But if leaders want their companies to survive, they can’t live in the 20th century any longer. It’s not going to work.
Dan for the record I puroposely departed from Brian’s assertion of ‘cluelessness’, replacing it with a (slightly) less mean analogy of cotton in the ears. He has the clout to throw that out there like that. I need to be a little more precise with my insults:
But don’t you think you’re making excuses for slow execs, with the suggestion that we have to speak in their antiquated terms – bad terms being the very premise for this article? Are they our elderly grandmother, for whom we boil our line of work down to, “computers, Gramma, I work in computers.”
Mr Godin’s on-going tone of ‘agility or death’ is, to me, both accurate and totally inspiring. As I mentioned, hand-holding is not my battle. Those companies who continue to demand things on their terms are dead in the water anyway, and working for them feels like looting.
I’ve sat across board room tables in complete awe of a ‘C’s ability to frame and implement ideas – just shut my mouth and observed the awesomeness. I’ve also sat across from ‘C’s who are complete bozos, whose glaring insecurity clouds their ability to listen, and to re-frame, as the world changes around them. Which group would I – would any of us – want to work with?
I love this discussion!
Just for the record, I don’t consider “clueless” as mean, because not getting it yet is nowhere close to stupid. Often, it’s a virtue.
Agreed. ‘Yet’ being the requisite word.
When organizations think of “marketing” as only impacting sales, they miss the whole point. Online marketing can increase sales and/or decrease expenses IF you have the right culture.
For example, many organizations when faced with a decrease in sales, terminate/decrease their marketing effort so that they can hire more sales people. But if they had the right “culture” then they would increase their marketing efforts and not terminate them.
Dave, while I appreciate your point, your assertion is why so many organizations concentrate on short term solutions versus long term value – and in the end are superseded in the market by people who fundamentally appreciate that the culture of marketing returns the highest value in profits and competitive strengths.
Except my point is all about long term value; talking about marketing as an expense and not an investment is really the short-termist perspective, because it shows that you’re not thinking about how you can develop it in the future.
For example, a “marketing culture” is precisely one of the assets that marketing investment develops, and gets a return from. If you want to build a business culture, it doesn’t just spring from nothing – you have to develop it using time (and quite often money). Even as an unconscious process this is inherently an investment in an asset that belongs to the business. Unsurprisingly, many businesses have developed this asset and reaped great returns in terms of their bottom line. This is tangible stuff from an intangible investment, right here.
So why shouldn’t business leaders ask for a return on this investment like they would any other? Yes, it’s hard to measure, but that doesn’t mean that you shouldn’t. The only answer I can think of is that marketers are frightened of having to justify their activity – and my assertion isn’t that they can’t, it’s that by looking at things this way they are avoiding the question.
I don’t think marketers are frightened to justify their activity, I think some business leaders are frightened by marketing because they don’t understand it as a core of their business.
That is why they isolate it structurally, they are skeptical of it financially, and ignore it regularly.
My point is not to dispute that the sentiment you express is not valid, but that it is inherently limiting. Strong, long term organizations have an ingrained sense of the culture of marketing which is reflected in what they do as a business, not as a function of “marketing”.
When exactly would you see a return on ‘culture’. When would Exec A turn to Exec B while riding to the 15th tee and say “Hey, that culture decision really paid off eh? We made a killing on that sucker”.
But I’m hearing two irreducible perspectives here: A) My head thinks your sentiment is logical, and that somewhere, somehow, there is a measurable ROI. But B) My gut feels that building a culture is intangible. Culture is created moment to moment, and the more it proliferates throughout an organization, the more you see marketing as a ‘feature’ of the organism vs an ‘event’ that happens as a scheduled activity.
Did I mention I love this discussion?
This is the measurement problem. You ask when you’d see a return, but the returns are part of the business process and are difficult to separate from the rest of the activity. You may as well ask when you’d see a return on improving the quality of your product.
My point is not that executives should sit around poring over data and trying to pin down the ROI on culture decisions; in fact my opinion approaches option B more closely in that ROI is very difficult to measure for intangibles. My real point is that when Sonia and Sean claim that ROI is an inaccurate term, they’re not correct – as various commentators have pointed out, marketing activity can be an investment and so it makes sense to expect a ROI even if you know you can’t measure it accurately.
The interesting thing about this whole discussion for me is the assumption that we’re all making that it’s difficult to measure the value of marketing activity to a firm. Why are we making that assumption, and if it’s true, what could we do to improve our measurement?
The argument that Marketing is a cost of business is one side. Small business often see NOTHING as a cost of business. For example the Engineering company I work for tries its best to get out of paying unemployment when people quit by Firing them, and often waiting for an opportune time that will keep them from having to pay it. My girlfriend told me it was stupid because Unemployment insurance is a cost of business, but for small business, NOTHING is a cost of business, but just a COST. If the owners see a way to cut that cost, they take it. You can call it limiting, short sighted, or anything you want (I certainly have. I’ve even written articles outlining a marketing culture where you use ALL your employees as figure heads, which puts it back into a cost of business mindset) but it’s fundamental, real and recurring.
It is possible to calculate an ROI on Marketing strategies, and especially on campaigns. Time and money are easily quantified as cost, and your result is measureable. If it’s sales, you just set up a way to track the sales that come from the campaign seperately. If it’s something like Facebook Likes, you figure the cost and ask if it beats the price that the market puts on a Facebook like. If your campaign targets product awareness, or brand loyalty,or some other intangible growth, everyone just agrees that the results won’t be as measureable as they are used to, and benefits will continue to materialize long after the campaign has ceased.
Most of the marketing firms sprouting up work for small business. These people want to know how much each campaign makes them, and how much it costs them (AT least in the beginning). There are only 500 Fortune 500 companies, but millions of small businesses. Corporate culture is a fun subject, but not near as relevant as how to deal with real people who 90% of online marketers will be dealing with If they get any work in the first place.
I don’t know if you’ve ever dealt with a small business owner, but all of them except those in dire need of your services prefer someone to work with them, and not tell them what they need to do. You wouldn’t last 2 minutes with the kind of spiel you’ve concocted in this blog.
I agree that a lot of marketing bloggers just run with things they vaguely understand, and end up making it viral, and sometimes canonical. There is a very specific need for ROI in the online marketer’s lexicon, and I have to agree with Dave that your view of “This way is better and you’re clueless if you see it differently” is a major problem with your argument. It says to me that you’re trying to bully people into adopting your viewpoint here, and it’s obvious why: an argument based on semantics can’t stand on it’s own. I don’t see someone who formats marketing campaigns for businesses every week when I read this, I see someone who writes articles about it every week. It just seems like you’ve drawn your whole experience from marketing ROI from reading other articles and talking about it.
I’ve spoke too much. Hopefully you’ve understood what I’m betting at, that for the majority of business, they have costs, not costs of business. They cut costs anywhere they can and they don’t try to run their businesses like American Airlines. They aren’t stupid, and they even know how to use social media (Gasp!?!). In reality, the appeal of online marketing is the low barrier for entry, the minimal cost, and their goals for it are always different.
Great conversation Sean. Marketing with SM, while widely attempted, really ends up being brand awareness on SM. The whole hype over SM is misplaced in the marketing realm. It’s a PR function with ad and marketing overtones. You guys hit this one on the head.
Great stuff.
Always,
Phil
Best drunk interview ever.
…I agree. This was awesome!! Lol
Amazingly, Sean talks this way when he is sober. I know, I didn’t believe it either.
Thank you for your indulgence as I suggest the following considerations with regard to the so often unjustly imposed benchmark know as ROI.
The anarchist in me loves the suggestion that considerations of ROI or “Return On Investment” be, dismissed as irrelevant. While, however, most of us have borne personal witness to strategic failures grown out of flawed deference to measures of ROI, I would suggest many of these failures are not in the application of these measures but in their determination.
The crux of any consideration of ROI, by reason of complexity, remains the accurate determination (or estimation, as it often manifests) of the total return—usually as earnings or income— directly attributable to some investment. The difficulties in determining an accurate ROI are further exacerbated when statistically significant returns from an investment are expected over time, from multiple channels or from higher-order consequences. While time and value weighted returns can be easily addressed by standard arithmetic means, the nonlinear systems that underpin the approximation higher-order returns remain far more complex. I believe this is where the meaningful application of ROI measures, break down.
Today’s massively interconnected, “many-to-many” communication channels do not simply drive additional returns over a longer period but, realistically, have the potential to generate returns from channels historically unaffected by more traditional “one-to-many” (i.e. broadcast media, etc.) functions. While precise measurement of these higher-order returns from massively networked markets probably remain intractable, I believe currently available logging and statistical data can be used to predict earnings accurately enough to be actionable.
Put simply, I believe the application of ROI to investments in networked or social media fails not as a result of its irrelevancy but because of a common failure to accurately address potentially significant (and historically unanticipated) returns from higher-order influences—influences that remain at the center of social networking’s explosive proliferation.
Mark
TOGO Media, LLC
Mark, I appreciate your point on the complexity of measurement; and I agree.
Hence the idea of profit being the best measurement of all; but not the only one.
While networked marketing channels may not be easy to track direct causation, they can be considered in evaluating social media actions towards known events.
Hence in defining new measurements, we can attribute correlation to specific actions like website traffic to social media actions.
For example, we would never track the Cost Per Tweet since its result is meaningless. However we can (and do) track the number of tweets over a given time and the corresponding increase in traffic. Since we know more traffic equals more profit we can can create a measure that provides intelligence into our social media actions and its affect on our bottom line.
Hence instead of tracking for ROI we track a performance measurement of action that leads to a higher return on profits.
Sean:
Thank you for your response as well as your museful post. I, too, appreciate your insight.
While the determinist teachings of my virginal background in chemistry (shhh…) still echo, yearning for some measurable, elementary social marketing “particle”—unilaterally accountable and measurable—the seduction of media’s intractable influence tempts like some Holy Grail or commercial forbidden fruit.
The animated comments above and below ring of the famous, albeit fruitless, pseudo-aeronautical debate among proponents of Newton and Bernoulli. We must be careful to moderate the influence of our peculiar personal paradigms where matters of scale or even lexicon tend to describe like effects in such ways that they are not easily recognized. In the end, I think you have generated much consensus in a highly debated field—a brilliant feat.
Most important to remember, in my opinion, is that social media marketing IS marketing. The key is learning what tools are available and how to use them well. Just as with a new instrument, the complexity (and “return?”) of how and what you play comes with experience. Beautifully, there are few barriers—financial or otherwise—to playing. It’s so important not wait to try your hand.
Mark
With social media, as with so many things, we integrate tiny influences and derivate trends.
…hard to believe, but true. Gary Vee answered the SM-ROI question: “What’s the ROI of you mother?”
Hans – Greetings from Berlin, Germany
Great quote!
Yep he said it on my show.
🙂
Informative post, guys. One thing I would like to see you guys build is a tool to tie these things all together. I use your Studio Press templates, your Scribe SEO tool, and now your Premise landing pages. But what I need is a way to tie this all together into a daily or weekly marketing strategy utilizing social media. What you need to build is a TweetDeck/Bufferapp style interface for WordPress that would take my blog posts, landing pages, and keywords, and effectively get the word out to my social media accounts for me on a consistent basis.
Bottom line… if you can come up with a product that I can use (and also sell to my customers) that allows me to manage my “platform” in under an hour a day, you’ll have to change the M to a B in the profits department (That’s Millions to Billions). We all need a way to take this social media complexity and make it work. Can you help?
Great idea!
Ha ha. Got your work cut out for you Brian.
We’re on it, John. 😉
I work with a lot of small business people, and they all want to know how to make this “social media thing” work. You are the guys to build the product to make their jobs easier. I can’t wait to see what you come up with!
Just voting this one ‘up’ 🙂
LOL. =)
@Blog Tyrant they spoke in different terms and yet were speaking the same thing, very interesting interview indeed!
I just love this phrase Sales generate revenue. Marketing generates profits bold very true!! I totally agree with this interview, a customer should be mesmerized once they visit your site, and definitely having a landing page strategy will go a long way in ensuring effective social media marketing. I do not have a landing page for my website…seems there is much more I still have to learn.
Kudos on a GREAT interview. I particularly like your definition of marketing: “Marketing is a process of decreasing the time, money and resources required to communicate with customers and make it easy for them to buy products and services.”
Great work!
WOW!
It’s good to hear about the “why” of things. It makes all the things I’ve been copying from Copyblogger make sense, and in turn will make it easier to do better in the future.
I especially liked the idea about unique landing pages for each social media platform. Even though Google Analytics tells me which sites referred each visitor, it would be very cool to give Facebook visitors a unique initial experience once they reach my site. And the same for Twitter, Youtube, etc.
Great, excellent, wonderful ideas!!
Thank you all so much for helping us non-business types understand how all this works.
Brilliant interview, I really liked the part about marketing not being an asset, but an expense. And its good to know that studying for an accounting and finance degree can help in the world of blogging too.
Very interesting interview (especially because it’s a topic I’ve been doing a lot of writing on lately).
I can definitely understand – from a financial point-of-view – why the term “ROI” gets misappropriated, even if it doesn’t specifically relate to expense activities like marketing. I think it’s still important to find a way to measure results from social media (instead of simply doing something because an “expert” recommends that you do without tracking whether or not it’s working for your business), so I’m glad that you gave a few alternatives that can be applied to web businesses.
Thanks for sharing!
I agree with that wholeheartedly — just because it may not be technically ROI, you still want to make sure you’re getting something out of what you’re putting in. 🙂 Too much “expert” social media advice lacks any accountability. A good landing page strategy helps a lot, because it does allow you to put good measurement in place.
The company I was previously with was really struggling to jump in to the Social Media world for both clients and itself and the main reason why was that they could not figure out how to figure out the ROI. This article makes perfect sense. It’s like a whack to the side of the head that does an excellent job of making you re-assess how best to use Social Media from a marketing standpoint. Great job!
This is what I’m finding too Tom, that there’s an instinctual desire to jump on board – because any smart person can agree that more engagement = more profits – but that primary instinct then gets limited by an inability to ‘fit’ it into traditional forms of metrics. Isn’t it ironic?
It’s like you offering me 2 tonnes of gold bullion for a song, but me turning it down because it doesn’t fit in my truck!
I was lucky enough to see Sean’s premiere of a presentation on “No ROI in Marketing” in Dallas a few months back. This is really a great post that captures everything Sean talked about that night. Marketing teams need to be more in tune with their accounting departments to understand their real impact on the business.
Helping to generate leads which turn into sales and revenue is all fine and great, but if you’ve inflated losses beyond what that revenue covers then you’ve actually negatively affected your business. Efficiency, purpose, and clarity are key to the success of any marketing team (and the organization as a whole).
Great post Sean and Sonia – and Sean thanks for treating us to your presentation and sticking around for drinks after!
Heather, thank you so much for the kind words and for letting me run this idea by the MeetUp group. The feedback from you and the rest of the audience helped a ton.
You bet, Sean.
Sonia, a really interesting interview. I love the way you outlined it and the humor.
ROI is sometimes a concept that can misunderstand, but Sean explained in plain English how everything works.
Thank you!
Awesome article, and best drunk interview ever!
I have two minor quibbles. First: Dave is right-marketing builds a brand, which is an intangible asset. It also builds a client list, which is another asset. These are both salable, in the balance sheet sense, so marketing isn’t STRICTLY an expense, although it should be treated that way for day to day operations.
Second: there are two ways to look at ROI…return on investment, or savings on existing investments. Saving money is also ROI. Not many people talk about that. So, if your cost of customer acquisition drops as a result of social media, that savings is a return on investment too.
Ultimately, I think marketing is a Return on Asset (ROA) activity, which would fit in well with “baking marketing right in” to the company and processes.
Sean was dead sober, I may have been slightly tipsy. 🙂
Fabulous explanation of complex concepts conveyed in a way that is easy to understand.
Agree that Marketing is an investment – similar to paying for your child’s education and development. You can measure how effective your spend was, but there is no common definition of the characteristics of success — is it how much your kid makes? How happy they are? It will be different at different points in time and and, an added complication is that many of the measures are intangible.
Bottom line: no investment is not an option.
Coming from the brick & mortar world, I certainly know what ROI is, which is an expenditure on a “thing” that you can see and touch and which is also supposed to make you money some time in the future, the shorter the time, the better the ROI. It’s both tangible and quantifiable. Being neither an expert or even experienced, in the virtual world I find the whole argument sort of silly. The only “investment” is in somebody’s mind and what it can produce which, in itself, is an intangible. If a “thing” that was purchased to improve the bottom line doesn’t do so, you quit using it. Wouldn’t you do the same with a mind that didn’t remain fertile and produce good content? So, you can throw out the ROI acronym, because there are no “things” in which to invest. The “I” could be replaced with an “M” for Mind or a “P” for people or a “W” for Words or, as Sean intimated, simply an “E” for Expense. Really, though, the thing a company needs most to know is: “Are we making money? Okay, more than last year?” And, that’s true for ANY company.
Ok, I love some of the stuff I read from this site. I really do. But sometimes you guys really need to write for the web. Call me ADD or impatient, but I was a quarter of the way through this when I realized I had a whole lot more to read. I never see blog articles this long on any other site, and for good reason. Break it up! This was just way too long.
Second, just because marketers might be using the wrong terminology (ROI) doesn’t mean they aren’t measuring the right thing (return on expenses, profit margin, whatever). I kind of got the feeling you had to make this nitpicky argument just for the sake of attention. Well, I guess you succeeded with me.
Deelirium, the fact that people are using the wrong terminology is why this post was written. The usage of the word skews the conversation from what matters.
True, marketers may be measuring the right thing but by using the wrong terminology, they actually do more harm than good in describing their benefits. A subtle point but important.
For example, if I were to calculate the ROI of using Twitter I would have to know the cost of using Twitter. Would you really want to calculate the cost of using Twitter? Does it provide any measurement that actually matters? Of course not.
Words matter (or so I have been told by those editors at Copyblogger) and when we use terms that are knowingly wrong, we will not be happy with the results of their implied meaning.
I agree with the discussion in general, so don’t take this wrong, but one small correction.
Marketing activities do indeed generate some real ROI that can be measured as an actual asset. A “brand” is an asset that is both measurable and real. See: http://www.rediff.com/business/slide-show/slide-show-1-worlds-20-most-valuable-brands/20111011.htm
So, if Coke were to shut down manufacturing, get rid of all assets, and fire everyone, someone would still buy the brand for a LOT of money. This same effect is true of smaller businesses.
Having said that, the amount of brand equity you are building may be very small compared to the amount you’re spending. At the same time, maybe not in the social media space. For example, if you started a company and spent $100k to obtain 100k followers on Twitter, that would actually be a valuable asset which you could sell on the open market.
So not all of these activities are purely a P&L exercise.
Cheers!
John P.
I think that’s a good point. I do believe in a brand as an asset — good will is an asset, reputation is an asset. Tricky to transfer to someone else, but still, an asset to be taken care of and developed.
John, you’re right. But the mistake is in the idea that marketing creates a brand. I’d argue it doesn’t. There’s a difference between displaying a brand and building one that actually means something.
A meaningful brand results from the actual interaction with a company and it’s products and services. It’s the expectation of continued quality that makes a brand, not the marketing you engage in to get people to know, like, and trust you enough to give you an initial try.
In other words, a true brand is actually built at the point of sale and thereafter, one customer or client at a time. Marketing continues post-sale (which is what a culture of marketing is all about) but arguably it’s a brand intensifier at this point.
For example, what’s the ROI on great customer service? We know companies that have great customer service tend to be more profitable than those without it, but is it a truly quantifiable return on dollars spent?
And isn’t good customer service actually marketing? Doesn’t it also expand the brand?
When you start asking these types of questions, it’s easy to see that a pervasive culture of customer-focused marketing makes for a highly profitable company. It’s also a company that doesn’t ask what the ROI of that culture is. It’s just baked into everything.
I don’t know Brian — to say that Marketing doesn’t create the brand, direct experience does is incorrect in my opinion.
There are plenty of brands for which I have a distinct brand impression — most folks do — but I’ve (and many others) have never directly experienced any of them. For instance, I think the a G5 is probably the #1 luxury brand in private airplanes. I’ve never even seen a G5 up close but through marketing, pr, product placement, etc — marketers have conditioned me to believe this point.
The same can be said of Ritz, BMW, Armani, etc.
Instead I would argue that perception is reality in the absence of experience. Thus, my brand perception is built through marketing and either reinforced, enhanced or destroyed through direct experience.
@TomMartin
See, I like your argument for something like Coke (which has very little in true experience to offer, so the marketing has to do superhuman things to create an experience via amazing advertising), but I don’t buy it for Ritz-Carlton, BMW, or Armani.
Ritz-Carlton in particular is *all* about delivering an exceptional experience. BMW & Armani also have remarkable products, it’s not just a matter of great advertising.
Sonia,
As for Coke — totally agree. In fact, it’s been proven in advertising research that folks will pick Pepsi if you do it blind… but show them the can, bingo – Coke wins. That’s marketing not experience working.
As for Ritz, etc., how do you know that Ritz is ALL about delivering an exceptional experience? Did they tell you that when you checked in? Was it on that little tag on the pillow? And what if you’ve never ever stayed at a Ritz?
The argument I make is that BEFORE you ever step foot in a Ritz you have an expectation of elegance — you have to in order for the Ritz to justify the higher room night cost. Otherwise you’d never book.
Marketing has, does and will always build brands. Experience is a part of that but to dismiss the power of brand building advertising, etc. would seem to ignore proven history. And thanks… glad you liked the line….
We have made a wreck of the threaded comments. 🙂 I’m just going to click on a reply button somewhere and we’ll see where it posts.
Anyway, I know that Ritz is all about experience because people I know rave about R-C. (As it happens, I used to work in a luxury hospitality company, so I have more exposure than some would.) The R-C customer tells other potential customers about the R-C experience. That may or may not filter to the general non-R-C going person, but I don’t think R-C cares. They care about what their own target is saying — they also spend a lot of time, money, and thought making sure their customers say good things about the amazing times they have in R-Cs around the world. Ritz-Carlton is *king* of baking marketing into their product by doing remarkable things.
All that said, I think marketing does a lot to extend and even improve the experience. If Ritz-Carlton ads looked like Motel 6 ads, it wouldn’t feel nearly as nice to stay there. It’s the Riedel factor: the marketing — the storytelling — makes the experience more enjoyable.
And if no one knew how luxurious and nice a BMW is (via their advertising), I don’t think people would feel as good about spending the money to buy one. Part of what the BMW owner pays for is the knowledge that there are other people who can’t afford a BMW.
It’s interesting stuff to think about, especially as the words “marketing” and “brand” take on different shades of meaning depending on who you’re talking with.
That last paragraph is wicked, though. Giving that some serious thought.
Tom, you’re talking about advertising, which is something that’s purchased and theoretically can bring a measured return on investment. Marketing in general, and social media marketing specifically, is something you do. And with social, it’s the experience of the brand that causes it to spread and become meaningful.
Marketing can totally create a brand – the phenomenal success of the Kardashians is perfect example.
The Kardashians, who ostensibly do nothing, but act as a self-promotion machine. They’re “marketed” to the public via their own television show (for which they are paid), TMZ, US Weekly and countless other entertainment news (read gossip rag) outlets (equating to very high-profile marketing for which they pay nothing).
Their “brand” in turn enables them to market their own products and events (including a TV wedding special !?!), in addition to marketing products and events for other, which makes them obscene amounts of money based on almost no investment of any kind.
I would also say that Social Media provides a great deal of very successful marketing for the Kardashians, both viral and Word of Mouth in nature. And I would further submit the Kardashians ROI in the Social Media Marketing realm is through the roof, and completely quantifiable if you were to take the time to pencil it all out.
Jessica Simpson is another excellent example. She does not now, nor has she for many years, sing, dance, act, or contribute to the entertainment world that yielded her current status. She does, however, make a killing selling her own line of moderately price clothing, cosmetics and perfume – all based on her “brand” which was quite successfully marketed into existence.
And as far as advertising goes, Simpson was the kind of “artist ” record companies loved, because they spent very little to promote her albums, which were terrible but sold heavily, once again based on her “brand.”
Simpson also greatly benefits from Social Media – pointless nonsense about whether or not she’s pregnant is everywhere one Facebook and Twiiter – and I guarantee her Social Media Marketing ROI totally KILLING IT!
Ah, but you reveal your biases. You think marketing is the sole basis for the Kardashians and Jessica Simpson because they “do nothing” and the music is “terrible.”
I agree, that’s why neither “brand” means anything to me. But they clearly matter to other people, and it’s the experience of meaning that helps those brands grow.
“Nothing” and “terrible” are subjective. Plenty of marketers have made the mistake of assuming that it’s all marketing in those cases of bad taste. In one sense it is, but it’s baked deep down in the entire experience for those who it’s aimed at.
I’m not dismissing either the Kardashins or Simpson on the basis of bad taste – my subjective statements are merely meant for dramatic effect.
The reality is, many consumers, with a only vague awareness of the Kardashians or Jessica Simpson (they may not even have ever seen the Kardashians TV show or heard any of Simpsons records), consume products marketed for or by Kardashians and Jessica Simpson simply because they’re aware of the “brand” (which has been mass marketed into existence).
These consumer may have little or no attachment to either entity, but are trading on brand awareness (ala picking Coke when presented with the Red and White can). And this brand awareness is all due to marketing.
I know plenty of people who would purport to despise the Kardashians, yet follow them on Twitter. The scope of their brand has convinced people they have something relevant to say.
You’ve probably already read it, Brian, but for those interested in this perspective (I dare say obvious truth)… “Branding Only Works on Cattle” http://oth.me/tCAEe9
And these things tend not to appreciate (or depreciate) on a tidy scale. Looking at a company like Zappo’s, the “return” on their approach to service is immense, but it couldn’t have been plotted on a graph in advance.
I think the central thing Sean’s really getting at here is that when we use the term “ROI,” we think of marketing as something external. It’s a synonym for advertising. And that tends to lead to marketing that doesn’t work particularly well, or marketing that’s optimized for the wrong things.
You can create the most brilliant ad campaign in the history of advertising, but if it’s used for a product that lets the customer down, if there is no “remarkable communication,” to use my own phrase, backing it up, then you have a company that will fail. That’s truer now than it ever was.
“Looking at a company like Zappo’s, the “return” on their approach to service is immense, but it couldn’t have been plotted on a graph in advance.”
So what you’re saying is that it is an investment* with a recognisable return, but a special case because it’s an intangible? The key point is that the inability to plot it on a graph is not a failure in the metric itself, it’s a failure in your ability to forecast and measure.
In that case it’s a bit of an arbitrary distinction, and it doesn’t mean that ROI is the wrong way of looking at it from a business perspective.
*Where the investment here is designing an explicit marketing strategy and business processes to take advantage of relationship marketing – this represents an investment because it has a quantifiable cost to implement and maintain, and a tangible return in terms of increased sales.
The whole reason Hsieh sold to Amazon is that his early backers wanted a greater return, and wondered if the non-tangible “culture thing” (which has a quite tangible cost associated with it) couldn’t be scrapped. The Zappo’s culture is the business. You can’t sell it off like an old phone system you don’t want any more. Well, you can, but then the company doesn’t work properly.
The point I came away with was that thinking of it as ROI tends to make companies make the wrong decisions.
…And the alternative is to view marketing as the nervous system of the business-organism.
Efficient, responsive, agile marketing sends messages for the business very well, and results in a ninja-like, effective business which makes moves that are high-profit for the whole.
Inefficient marketing, or marketing that is seen as “just a limb” of the business, results in a neglected, clogged up, unresponsive nervous-system, and the business struggles to keep up with it’s changing surroundings.
2 cents, courtesy of… me 😀 Great post, great comment thread. Gogo copyblog-ites 🙂
John, thank you for bringing up Coca Cola. A great “classic” point.
While NYSE:KO does have over $12 billion in intangible assets, the value of this asset is in the income it generates, and not the Balance Sheet asset it represents.
For example, American Airlines (NYSE:AMR) has over $900 million in Intangible assets yet its market cap is just under $400 million and it is in bankruptcy. So how much is the value of that “brand” today?
Trust me, finance people love income statements and when companies are profitable, the real “value” of an “asset” is easy to understand. Hence the marketing activities that affect the P & L is the real measurement of a brand.
Brilliantly executed article Sonia and Sean! Such a fresh take on Social Media and marketing, and very entertaining at the same time… Loved it!
Thanks.
B
So… Social Media Marketing is an IOR – an Investment On Returns (returns being profit margins).
I’m the son of a frustrated English teacher. The exactness of words mean a great deal to me. I am also married to an accountant. I have a basic understanding of the difference between an expense and investment. Thank you for this article. Although I understand from context what people mean when they talk about ROI, I can follow the logic and know that it is actually a misnomer. I guess, like everything else, it all comes down to listening to what people mean rather than what they say.
Great perspective on an issue that’s plagued marketers since the advent of the Internet!
I’ve never thought about changing the way marketing is quantified, but have always been uneasy about the idea of ROI.
Also, y’all make some VERY valid points about how so many business owners view marketing as an expense vs. as a part of doing business.
Great post!
Interesting post but you really are splitting hairs. Direct marketers have been using ROI to drive their businesses for several decades. Just because the term is misapplied doesn’t mean it lacks all validity.
Thanks Tom, I have a great soft spot for direct marketing, and yes, it’s that rare bird — advertising that can be measured with great accuracy.
Even so, because of the hyper-connectedness of the world right now (which allows customers everywhere to talk you up or down depending on how well you serve them), even a company that gets most of its customers via direct marketing methods can benefit from “baking some marketing in” in other ways. There are some great companies out there combining direct mail, social networking, remarkable business practices, and content marketing — everything works together and it’s probably not possible to tease out how each element influences the others.
That’s in many ways easier for a very small business to pull off, which is creating some very nimble, very profitable little businesses out there.
Sonia, I’d definitely agree with you. Except that I’d argue that trying to find ways to measure the interactions remains important. If it can’t be done in the short term, these channels certainly shouldn’t be abandoned for lack of measurability.
By the way, I’ve re-read my post here several times and I can’t see that it’s anything other than polite. So I’m at a loss to understand how you can comment as you did below – and then remove the “Reply” button so I am unable to respond directly. So it’s clear which of your comments I mean, I have copied them in below.
“Tom, the way you expressed a differing opinion, and also Dave above (who I suspect thinks I smoke crack every bit as much as Jason does) speaks worlds.
I am nice about 99.9% of the time. Sometimes I am not nice”
Tom, Sonia is saying that you expressed a differing opinion in a respectful way. Jason did not.
So, she’s complimenting you. Also, she did not remove the reply button … that thread is simply tapped out due to length.
Ah, my mistake. Thanks for clarifying.
You’ve prompted interesting discussion with this post. Keep up the good work.
Unfortunate coincidence about the Reply button! Not at all, I thought your comments were a good addition to the conversation.
By the way, I 100% agree with you that it’s important to find ways to measure interactions. It can be done and it should be done.
You make some very valid points. As the social media practice director for a PR/marketing firm I am constantly asked about this – especially with small to mid-sized companies that live and die by their sales figures. My short answer is, “I can get them to the church, but I can’t make them pray. How much is it worth to get them in the door?”
I like your answer, especially since it comes from a CFO. I think I might need to start circulating this post.
We do like to give you the tools you need to get it done. 🙂
Hi guys,
This was fun to read. Question: Is Copyblogger now running Google ad campaigns? I noticed that Studiopress ads are chasing me around the internet, and this article made me curious as to whether that’s you guys or someone else. I’m assuming it’s you all, but maybe not . . .
It’s an affiliate. We don’t do any advertising.
That’s hilarious. I was confused the past couple of weeks thinking you guys were turning over a new leaf. Then it dawned on me today that it could be an affiliate marketer. Apparently my suspicions were correct.
Surely the definition of investment is ‘putting money into something with the expectation of gain’ and by that definition marketing is always an investment – if you weren’t expecting to recoup your costs and then some you wouldn’t do it… Let’s leave the accounting semantics to the finance department.
Excellent article!!! It’s posts like this that help smaller business like mine to understand and implement marketing strategies that work.
Keep up the great work!
Everyone misses the obvious. Social media is what people are already wanting to do. The value isn’t “what I can broadcast” it’s “what people need.”
People bitch about whatever it is that you do, or they ask for recommendations. “know anyone WordPress” was a phrase that made me $54,000 on Twitter last year. I can’t calculate the ROI because you can’t divide by zero.
https://twitter.com/#!/search/know%20anyone%20wordpress <–That.
“know anyone, need someone, recommend” + your keywords/variants and you’ll have leads of people that are ready to go. Fish. In. A. Barrel.
Funny thing is that big time companies have the same needs. Adobe asked for a photoshop pro…etc etc.
This was fun. Thanks, guys.
Sonia isn’t drunk, she’s smoking crack! One doesn’t invest only in hard assets that can be carried on a balance sheet. One invests in any number of things. Take equities, for example. That’s stock, Sonia, since you’re apparently business illiterate. Those are virtual pieces of a business, and one of the most common investment vehicles around. Sonia makes some decent points, but she’s a great example of why many marketing people aren’t taken seriously. Business and accounting are crucial pieces of the body of knowledge you need to be a good marketer. I have INVESTED a great deal of money in marketing this year and achieve a terrific return. At the end of the day, sales and marketing work together to produce a return, but there are really only four core variables that we can control:
1. Number of Leads Generated
2. Length of Sales Cycle
3. Close Rate
4. Deal Size
If you focus on those four things and make your investments in the things that drive those in the right direction, you’ll make money.
You’re arguing with points made by Sean, the accountant, not Sonia, the marketer.
Before you call anyone “business illiterate,” if would help if you improved your reading comprehension. Otherwise you’re just plain ol’ illiterate.
Big words from someone too chicken to put his URL in the comment box.
+1 on the whole reading comprehension thing. It does come in handy.
Hey, why not engage with what he said rather than respond to his rudeness with some of your own. Two wrongs don’t make a right, etc.
I am past the point where I see virtue in pandering to people who cannot be civil.
I quite like when people have different points of view, and there’s plenty of latitude to argue that there *is* such a thing as marketing ROI.
Like a tango, engagement takes two, Tom. Someone without the stones to put their URL where their mouth is would be called a drive-by troll. And it isn’t wise to tango with nor engage a troll. Unless you’re into that sort of thing.
Plus, how can you engage with what he said when he didn’t understand what he read? Seems a bit pointless.
Brian – surely he understood the gist of what was being said even if he was muddled about who was saying what.
Tony – yes, engagement does take two. He made a point – if rudely – and received rudeness back rather than any engagement with the points he made. As for no URL, surely it is the ideas expressed that count rather than who you are. Personally, I pick up more than enough work through word of mouth so have never got round to constructing a site. I’m sorry if that makes me a troll in some people’s eyes.
Sonia – I didn’t suggest you pander. “Engage” was what I wrote.
Tom, the way you expressed a differing opinion, and also Dave above (who I suspect thinks I smoke crack every bit as much as Jason does) speaks worlds.
I am nice about 99.9% of the time. Sometimes I am not nice.
Sonia: Don’t worry, I don’t think there’s enough crack in the world for everyone I’ve respecfully disagreed with to have been smoking. 😛
What’s with the agro tone dude? I missed your point due to the “ROAAAAAHHHRRR-I’m-so-angry”!!
Let’s start a pool on what Jason is – apparently so succesfully – marketing? My guess: anabolic steroids.and penis enlargment pills..
I’m sure he sells nothing but good and pure products intended to make the entire human race better. He did, however, get on my nerves. 🙂
You’re right. My bad – I have an allergy to bullies. 😉
I think it’s funny that many people think I wrote the whole post. Trust me, I could not in my wildest dreams ghost write for Sean.
This format was great. The Copyblogger faithful knows you wouldn’t ghost write for Sean.
Anyone who knows Sean knows he is a big boy, he can write for himself. 🙂
True, if I could just learn to spell gramer:)
Never gonna happen. 🙂
OMG! What an AWESOME article & what a fun format!! Thoroughly enjoyed reading it.
So, I’ve got to ask…
Was this a brilliantly written piece that at some point realized it had an opportunity to make mention of the premier landing page software, Premise… or was it a brilliantly written piece of indirect marketing, created to showcase the premier landing page software, Premise?
If it’s the latter, you could dedicate an entire podcast as to how this one post was created.
In either case, very well done. 🙂
The idea for the pitch came late in the game, which is often how it works for me — because what we make is so tightly tied to what we talk about, there often arise opportunities to mention products.
I’m usually not clever enough to think of the angle first, I’m just clever enough to spot it when it shows up. 🙂
Oh, don’t be so humble. I’ve still got a pedestal with your name on it. 😀
But I had a feeling that might be your response – still, a very well done article. I’ve passed it around to a couple of folks in the office already.
Ha! That danged pedestal comes with a wicked trap door. 🙂
I’m going to write a book and title it “2012 online marketing model with the social media package”. (j/k…maybe).
Love the post, Brian. As usual. Was a bit long, but I will read it through more leisurely later. Your content is always thorough and easy to read and makes sense. I appreciate the hard work that goes into that kind of writing. Your message reminded me of a post I read earlier in the year that I really liked (swear to god I am not link building here; I have nothing to do with this blog, just like this post and it does what you do–talks about ROI as a math equation…with real numbers). If you filter out links, it’s called “Social Media ROI: What Moves The Needle” on Wahine Media. http://wahinemedia.com/2011/09/17/social-media-roi-moves-needle/
Do it! People would buy it. 🙂
Hey Amy, I’m glad you liked out post! Thanks for the link and shout out : ) If you liked the What Moves The Needle article, you should also check out the first one, What’ The ROI of and Elephant.
Amy – funny, I was thinking about writing a book called, “Everything I Need to Know About Kindergarten I Learned from Anonymous Online Comments.” Maybe we could teach a seminar together. 🙂
Pitch it to Blogworld!
And I have a teaching degree! haha
That was incredible.
Love the format, love the content, love the variety… it`s so refreshing to read some `financial-speak` – Sonia, Sean, Brian and the whole copyblogger team… you guys rock.
Thanks for this, definite food for thought, and now I want Premise 😛
Ooh, I like it.
I love the fact you ended this article by saying ‘everything your organization does is marketing’. A lot of people don’t get that. Every interaction people have with your business is having a positive or negative effect on your image and reputation.
Yes, because everything you say and everything you do communicates something to your customers. That something can make the next sale more likely or less likely.
I think it is rather funny that only a few hours after reading your article, this one hits my inbox:
“Social Media ROI Remains a High Priority for Marketers”
http://www.mediapost.com/publications/article/163760/social-media-roi-remains-a-high-priority-for-marke.html
Maybe now that we are all armed with the information from this interesting discussion, we can suggest a better title for the Mediapost article… LOL
Well I’ll say this. I enjoyed the conversation and all about the marketing. As far as the replies that followed they are a result of the conversation which in itself is marketing. Each of us that read this will remember it and take the points they feel relevant and apply them to their business. We were entertained which is exactly what Sean pointed out that our customers want, to be entertained. To coin a phrase from the cartoon Little Einsteins, “Mission Completion.”
Before I read the article I thought I had to find a way to show clients that I/they could structure a social strategy in such as way as to demonstrate a convincing ROI to their financial people/accountant, but I was concerned that for a lot of small businesses this would involve a disproportionate amount of work (and expense in hiring me or someone else plus expensive – for them, I’m talking v small biz here – analytics tools) for a questionable result – along the lines of Aesop’s fable of the mountains being in labor and bringing forth a mouse.
So with clients I was trying to find a way they could convince their beancounters that the “investment” would be assured of bringing quantifiable returns such that the investment could be justified. In the process, while trying to but time to figure it out and work out how to charge for what in some cases looked like being a case of consulting of possibly questionable value, I took refuge behind smart quotes like Erik Qualman’s “the ROI of social media is your business will still exist in five years”, but quietly thought that was – for me – a somewhat pathetic copout.
So I found the article refreshingly iconoclastic. Ah, now I can talk to those financial types, or to the CEOs who have to talk to them, and throw around some stuff about balance sheets, P&L etc. That should work.
I read the comments and felt confused.
I do favor the “there is no ROI” argument as a log breaker for what I see as an unnecessary and counter-productive preoccupation with ROI (whatever that means and it clearly means different things to different people). But I now see that I probably need to be a bit nuanced in how I express that so that I don’t have people who are more financially literate than I (which wouldn’t take much) making me eat humble pie.
So here’s my takeaway for the moment. I will tell clients that the experts disagree on whether it is an investment or an expense, but that if they plan well and measure well as they go, they should be able progressively to identify how much – or how little – their efforts in the space are helping them put the fruit on the sideboard, and that they need to look at the possibilities and make some practical business decisions, just as they do with other areas of business (the “what’s the ROI of a business lunch,or a trip to another city where you may or may not clinch a great deal” argument).
But that the process is likely for most small businesses to be a marathon not a sprint, involving some setbacks, re-evaluations, re-configuring, different testing, and so on. I think smart small businesses can deal with that. I leave the enterprise level to others to deal with and will watch with interest to see if we are still having this discussion a year from now.
Whether that makes sense to others, I thank you all for the thought-provocation and idea-generation. Ultimately I want to have a story that helps businesses make good (if speculative) decisions which have a better than even chance of helping them grow and prosper.
Des, I will give you a secret in how to talk to financial people. Use percentages!
And if you really want to “wow” the financial set – show percentages over time and graph them!
That is why I suggested creating new measurements that matter. You can use these metrics to show the impact of your efforts in improving sales and/or decrease expenses.
Any time you can show a percentage improvement in the ways things were done to affect sales and/or expenses, the financial people will be able to connect marketing activity to financial viability. It only takes a %.
Thanks Sean. That’s very helpful. I’ve been invited to speak to/coordinate a workshop on social media with a group of wealth management people early in the new year and need all the help I can get in getting my head around this and being able to help them see more clearly the benefit to them and their clients of their being engaged via the social web. This post and comment thread are a timely gift for me.
Des, head on over to David Meerman Scott’s blog as well, he has done some interesting work measuring increased stock values for companies that have real-time social media engagement in place.
Sonia
Thanks for that. I am a DMS fan and will happily follow up on that. I don’t intend to get into this issue with my keynote in Jan, but I want to have done some homework before I get there, in case there are questions on the issue.
I really loved this article. One of the best ones I have read on Copyblogger! I liked the format of this thingy a lot, very easy to read. I really don’t understand some people saying that this article was too long or hard to read – webspace is free and sometimes it takes more words to communicate an idea.
As a person selling my services to Finnish small companies, I really found some golden nuggets from this post that help me better explain the role of social media and internet marketing to them.
Don’t waste your time trying to figure out this “alternative” to ROI. It does not work from a strategic or financial perspective.
Marketing should drive incremental profits – correct. But you should not spend more money on marketing than you generate in profits. Plain and simple, ROI is the comparison that shows this. If you spend $100,000 in marketing and generate $100,000 in profit, your ROI is 0% and you are at breakeven. More profit, higher ROI.
Efficiency is meaningless without effectiveness. If you are more efficient, your marketing spend will decrease and, if your effectiveness remains constant, your ROI will increase (for example, if you spend $80,000 to generate the $100,000 noted above, you are now at a 25% ROI). Use ROI as a metric to guide decisions works well because it reflects both improved effectiveness and/or improved effeciency.
The goal is still to maximize profits and not to maximize ROI, but this is part of managing the ROI process. I won’t go into the math details here but explain that as you increase the scale of marketing programs, the ROI may decrease from a high point of 100% and gradually reach a point of diminishing returns that could end with an ROI of 25%. For day to day decisions, ROI is a powerful tool to compare campaigns, improve performance, and reach financial objectives. Companies using ROI metrics are more likely to outgrow competitors and deliver highly effective and efficient marketing (see the 2011 Marketing ROI & Measurements Study).
A key metric we use is our efficiency ratio – Profit / Expenses. For example, if we spend $2 (across all expenses of the company) and we have a profit of $1 then our “efficiency” as a company is 50%.
The reason this is better measurement for us is because we do have a culture of marketing at the core of our business. Since our goal is to be 100% (or more) efficient with the money we spend to operate the company, it helps us track the long-term success of our efforts.
It also removes the myopic tendency to over analyze every expense (which is usually the case when people start using the term ROI) to create “guesses” on whether the activity may or may not make a profit.
As I stated in the post, marketing can either increase sales and/or decrease costs. By focusing on ratios like efficiency we have more freedom to test ideas and focus our efforts on doing things better in the long run and avoid short term tactics that focus on ROI.
Every business wants a return on its efforts. Profit is the best gauge of that effort. An efficiency ratio is one way to use the proper words to quantify the return – and better than using the vague (and financially wrong) term ROI.
When I was reading this, I felt like its one of those conversations I’ll have to read over and over again because the information is just so spot on and insightful.
It’s got me thinking about marketing in a whole new way, and validates a lot of the crazy things I’ve been doing.
It’s not a simple “just do this, dummy,” as so many of the social media ROI conversations have been.
Great article! This shift in perspective when it comes to ROI could (and should!) have a huge effect on the way businesses run their social media campaigns. I think 2012 is going to be a very exciting year for social media, and I can’t wait to see how it will effect the world of marketing and conversions! Thanks for the info, and I look forward to more in the future 🙂
Wow, that is seriously one of the best articles I’ve read on Copyblogger so far – and that’s saying something.
I’m all about pushing for more marketing – but realized I am definitely guilty of looking at it like “frosting” instead of part of the actual cake. Thanks for the eye-opening dialogue!
My first time commenting on copyblogger, and congratulations on stimulating such debate. We come at it from slightly different directions, but I couldn’t agree more with slaying the social media ROI dragon.
My take comes out of the Balanced Scorecard – the dominant framework for business performance management. I interpret one’s brand(s) and reputation as having value; intangible assets. But like all other intangible assets, you can’t take them out of the mix and ‘calculate’ an ROI in isolation.
If you and I designed precisely the same marketing strategy, executed exactly the same way, with exactly the same results, then the value to you is different to the value to me. Why? Because our organisations are different.
That doesn’t mean that marketing and PR campaigns cannot be measured. Quite the opposite. But there’s no universal suite of metrics – rather, we have to work hard customising the right balance of metrics to suit the strategy and execution. I call this the Influence Scorecard.
Thanks again for the entertaining and challenging discussion.
Balderdash!
Using profit as the primary measurement for marketing is terribly misleading. For one thing, profit is a LAGGING indicator – there can be months or even years between a specific marketing activity and the profit it produces.
Most companies can’t afford to wait that long to see if their marketing is actually working.
For another, most every function in company is aimed at improving profits. If a purchasing manager negotiates a 10% reduction in raw material costs, that goes straight to the bottom line — and it’s got nothing to do with marketing.
That’s like the rooster taking credit for the sunrise.
Frequency, reach, and engagement are the modern measurements of marketing? Lord help us. You can max out all those things and not generate a nickel in sales – never mind profit.
Effective marketing is measured the same way it’s always been: When it causes a buyer to take action that moves a sale forward.
Why make it any more complicated than that?
Of course there is. You just have to make sure to use the right channel and know how. I encourage you to read this BI Report from yesterday:
The First Business Intelligence Report Leveraging the Power of Rating and Community
http://awesomedc.com/2011/12/08/awesomize-me-the-first-business-intelligence-report-leveraging-the-power-of-rating-and-community/
Fascinating discussion here. If I may weigh in…
Marketing is only one component that contributes to sales/revenue. There are so many other contributing factors in the success of any product or service. Even when marketers do an amazing job, a campaign can fail regardless if sales, fulfillment or accounting ruin the customer’s brand experience.
In many ways, the digital space has enabled us to track and measure some results. But, this doesn’t necessarily work in all cases. Everything depends on the specific product or service. Many financial leaders expect marketers to take a one-size-fits-all approach. If a certain tactic doesn’t produce immediate results, they want to scrap it.
But, marketing is an art as well as a science. Testing and tweaking creative and content are a large part of the discipline. Sometimes perseverance pays off, and sometimes it doesn’t. The skill is the ability to use instinct and data to know when to stick it out and when to abandon it.
The one absolute in all this is that without marketing, there is a reduced chance at producing sales-revenue-profits. Whatever definitions or semantics one uses, my mantra is: No marketing, no money. Kind of simple. 🙂
how about
ROI = Sales – cost / cost
it is not meant to be 100% accurate …
if I want to compare offline marketing to social media I need a way to do that.
What is the cost to me, if I spend it here I get x profit, spend it there I get Y.
Same thing
This is excellent. I’ve found twitter etc very boring, and have given up on it. I know this is because it has been overwhelmingly presented to me as just another marketing ploy; and I really don’t enjoy marketing at all. This article of yours is logical, while showing the human face of social marketing; which is something I can appreciate much better. Although it was longer than most e-mails that I would read, it kept my attention. Thank you.
I wanted to share this clip of Gary Vaynerchuk from a speech he gave to the Inc 500 regarding ROI and Social Media – a more passionate articulation of the core point of this post.
http://www.inc.com/videos/201110/gary-vaynerchuk-earn-lifelong-customers-over-social-media.html?nav=vid
I love the reference to a teenage boy at prom. Y’all are right though: marketers need to stop jumping on every new get-rich-quick bandwagon that comes along, and plan for long-term relationships.
You say, “forget ROI, concentrate on profits.” I’d say, “concentrate on benefits.”
“Profit” still only captures numerical, financial information. But suppose you have two marketing activities, cost you the same, produce the same results, same time to administer them, but one you hate to do, and one you’re comfortable with? One is a big stress producer, and the other is no big deal. There’s a benefit associated with choosing that less stressful activity, but it not only won’t show up in ROI, it won’t show up in profits, either.
This is all very interesting…
I look at gaming, and the gains it made over TV and Music combined most likely because consumers are able to participate.. Audience participation, how best do you measure social interaction on the internet versus direct response like email?
Do you approach every marketing medium available or do you concentrate on areas where evidence of higher conversions are evident not knowing the duration because technology changes so rapidly..Do you throw plenty of mud on the wall and hope it sticks, there are walls everywhere?..
You say expense. I say investments. We’re arguing semantics.
Thanks , But I am not agree about the post ,
This is an excellent article. I plan to build this kind of ‘conversation’ into our rules of engagement… To start out with this sort of clarification with a client would increase productivity, improve relationships, and allow us to do our job so much better!
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