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.
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.
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.
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.
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.