Thursday, March 05, 2009

Social Media ROI

What is the value of engagement?

While this is the beginning of the season for Bridal Shows, we're talking about the use of social media and its impact on a business. The Social Media Academy published a piece on defining ROI.

The group defines it as follows using their emphasis:
Contribution Margin in currency generated from externally referred customers
over Interaction Cost in currency for human interaction and other cost to manage and engage in the ecosystem
I'm left with a couple of questions. First, what is 'externally referred customers'? Second, what 'ecosystem' is being considered, and possibly more importantly what isn't considered? The report says both are easily defined; I'm not so sure. We know people will use the channels they want, when they want making attribution an extremely difficult challenge. (See the "TV impacts search" reports.) Without definitions for these concepts the fact that it is based on margin and cost (a very good thing) it falls short.

There are only a few finite outcomes that result in contribution margin.
  1. A non-customer becomes a customer (trial or penetration)
  2. A customer doesn't become a non-customer as soon as we'd expect (repeat rate.)
  3. A customer buys more frequently (purchase cycle).
  4. A customer spends more per transaction (units per).
If social media does a good job of reinforcing #2, #3, & #4 how is that accounted for? Collectively these elements contribute heavily to life time value and that should be as much a focus as acquisition. Brand evangelists reinforce one another, e.g. Fiskateers, so to appear to focus on acquisition only is potentially misleading the impact of conversations.

Update: Just read a good article on measurement that offers a holistic view.

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