Why Do Companies Struggle with Social Media ROI? 23 Facts

ROI Fortune Teller

By Rob Petersen, {grow} Community Member

Only 8 percent of companies say they can determine Return on Investment (ROI) from their social media spending (source: Econsultancy).

I teach Measurement and ROI at Rutgers Social Media Marketing Mini-MBA along with Mark Schaefer and others. In my free eBook, 166 Case Studies Prove Social Media Marketing, there are plenty of successful companies that have proven a social media ROI. So why do 92% of companies struggle with this? The answer might surprise you.

Tangible is something that can be measured and intangible defies measurement. ROI is definitely tangible and something every business should be able to measure. It is, after all, a calculation. Here is the one most widely used:

Return (e.g. sales, profit) – Investment/Investment (X 100) = ROI (%)

For example, I go to my boss or my management or my board of directors and say: Give me $100,000 for a particular brand or business, my team and I will put together a strategy, execute and provide reporting. We’ll prove it generates $300,000 in incremental sales for a 200% or 2-to-1 ROI in 12 months.

What comes next is they say: You want me to give you $100,000? Well, if I do, I don’t want to just get that money back in 6 months or 12 months or whenever you tell me it will generate that revenue, I want to be convinced this is going to happen. I want you to prove it to me.

To prove it, the following steps are taken:

  • Define the return by the financial metric most important to the company’s success (e.g. sales, profit, conversion or shareholder value)
  • Account for out of pocket and internal investments (marketing and operations)
  • Determine the length of time (e.g. 12 month or 18 months). It should be done with an understanding of the customer buying cycle and what is the annual customer value.
  • Establish the Base Period against which the effort is to prove the increase

We come back. We review and discuss the numbers. Overall, the measurements stand up; then, the intangibles surface, the reason why companies struggle.

The leap of faith

With every ROI initiative, there is always a leap of faith. Someone is asking someone else to put up money; then, wait for some period of time before they see a return. This means the company, not just the people who put the calculation together, has to be aligned to the common goal and there is trust in people’s ability to deliver.

If you need more proof, here are 23 facts that demonstrate and explain why companies struggle with Return on Investment (ROI).

  1. 90% of CMOs say social data has impacted at least some of their decisions; only 47% use data to make predictions or forecast sales. (source: Bazaarvoice)
  2. 87% agree capturing and sharing the right data is important to effectively measuring ROI in their own company (source: BRITE/NYAMA)
  3. 87% of marketers want to know how to know how to measure their return on investment for social media activities (source: Social Media Examiner)
  4. 85% use social networks in some way; only 14% tie financial metrics to it. (source: AdAge)
  5. 84% of social media programs don’t measure ROI (source: Mashable)
  6. 82% of marketers who blog see positive ROI for their inbound marketing (source : HubSpot)
  7. 81% of marketers would increase spending on digital, mobile, and social channels if they could better track ROI (source: Compete.com)
  8. 70% says a “cross-platform model” for ROI on their business is a major goal (source: BRITE/NYAMA)
  9. 63% of CMO’s say “ROI will be the standard for their performance by 2015:” yet, today, only 44% say “I can measure ROI.” (source: McKinsey)
  10. 41% of company respondents report that they do not have an ROI figure for any of the money they spend on social media marketing (source: Econsultancy)
  11. 57% do not base marketing budgets on any ROI analysis (source: BRITE/NYAMA)
  12. 37% aren’t able to measure the value of social media (source: Econsultancy)
  13. 52% of marketers cite difficulties in accurately measuring ROI as their biggest source of frustration in social marketing. (Source: Adobe )
  14. 52% say achieving or increasing measurable ROI is a top priority for the coming year (source: MarketingSherpa)
  15. 51% say a lack of sharing customer data within their own organization is a barrier to effectively measuring their marketing ROI (source: BRITE/NYAMA)
  16.  39% say it is important to spend only on marketing activities where financial effects can be measured (source: BRITE/NYAMA)
  17. 37% do not mention financial outcomes when asked to define ROI (source: BRITE/NYAMA)
  18. 28% of CMO’s say their decisions are based on gut instinct (source: Edelman)
  19. 24% say determining any kind of cost-benefit analysis is a challenge. (source: McKinsey)
  20. 22% base marketing decisions on gut instinct (source: BRITE/NYAMA)
  21. B2B CMO’s say demonstrating ROI is their No. 1 concern yet fewer than 20% say they have the ability to measure it (source: Forbes)
  22. 7% say most of or all their spending decisions aren’t based on any metrics at all (source: Edelman)
  23. “How do I measure the return on my social media investment? This question has been top of mind for marketers for the last three years. Clearly very few marketers have figured this one out. (source: Social Media Examiner)

Does this explain why companies struggle with ROI to you? Does your organization apply ROI to your business?

Rob PetersenRob Petersen is an experienced advertising and marketing executive and the founder of the BarnRaisers agency. Follow Rob on Twitter: @RobPetersen

 

 

All posts

  • Hi Rob, couldn’t agree more. Measuring the “intangibles” is still eluding the market. But, this is only because we as an industry have not built out the tools to do so. The tools we have are so fragmented and myopically focused on small subsets of the overall opportunity, it’s difficult to see the whole picture. We are so busy telling everyone they’ve got to do this and got to do that without providing a meaningful way to prove why. Those who have, win big. Those who don’t will continue to struggle and be left further and further behind.

  • rob petersen

    Thanks Steve. Agree with your point we often focus on small subsets of the ROI formula to the detriment of getting everyone behind what has to be achieved. Can see how those who prove why are the big winners. Thanks for you insights.

  • I think that sometimes you just have to trust your principles. For example I know that in life relationships are what give me the most return. Returns in happiness, fulfillment, money, and many other things. Social media is just a tool to make relationships, and that is where the real return is made.

    Yes it is intangible, but could you ever measure the ROI of a relationship?

  • rob petersen

    Thanks Blake. The truth you can manipulate numbers but you can’t manipulate trust – trust in principles, trust in people. What makes relationships works is you’re willing every so often to take a leap of faith.

  • Actually guys, with solid tracking you should be able to and measure sufficient results to prove relationships do help make money. Business relationships are fundamentally different than personal relationships and serve an entirely different purpose.

  • I agree that there are different kinds of relationships. I also agree that you can track some of the money that comes from relationships. But how do you track opportunities, or connections that lead you to bigger things than money in your business?

  • Great question Blake. The reality is it all comes down to money because without it, the business ultimately fails. So, tracking what you can is a start and the rest takes care of itself over time. Simple systems are available that will track leads and opportunities generated by social media activity. If you can understand the intangible goals of the exec suite and generate simple proof of payback (through any means) you’ll accomplish the ultimate goal of social media engagement.

    The key is to find ways to leverage a direct ROI of social activity that generates the byproduct of addressing the intangible desires of those who make the decisions. These ‘desires’ are there. We just need to help them determine how to pay for them. IMO, when these ‘desires’ are uncovered, the means always justifies the end.

  • lalitha

    hi
    lovely this is article , thank you

  • Huh I thought the goal social media was to create relationships…

  • Blake, generally, social media provides “weak link” relationships. It opens a door. Generally these relationships are not actionable. The key is to strengthen them into strong relationships that lead to a business benefit. Note that I did not say money, although that is certainly one possible benefit.

    Let’s use “us” as an example. I have noticed you showing up on the blog and you have my attention because you are devoting time and energy to this community. At some point, this will probably lead to a meeting, a call or skype. We will learn more about each other and explore ways we can help each other. The link begins to strengthen. Eventually you might write a guest post, interview me about a book, or I might introduce you to a new connection.

    So far, none of these benefits directly involve money and are nonetheless tangible activities of value creation.

    Some day maybe you will hire me to speak at an event or I might hire you to help with a project. Money will be exchanged because we are now collaborators as the relationship progresses.

    I hope you see by this that social media can open the door to new relationships that lead to both qualitative and quantitative benefits.

  • I totally agree Mark. There are so many benefits from relationships past money. I know we are talking about business and how relationships can make money.
    But really if you think about it all your life is created by the relationships you have around you. Money is a very small part of life in general.
    With all of that said I do still think that for business purposes you should track relationships return as best as possible.
    In the end I think we are all saying the same thing though! Haha

  • totally agreed!

  • Hi everyone,

    Sorry I am joining late. I can see this from the perspective of advertising. Even when we ran TV ads for a client, unless it was a direct response commercial we couldn’t directly prove ROI.

    We ran commercials for a fast food client to generate awareness. Sales of their sandwiches went up or down. Perhaps it was the commercial but there are many other factors that could have caused it. What we did know is reach – how many eyeballs we bought based on ratings.

    Now we may have a Facebook page and post pictures of the sandwiches. Showing up in the newsfeed could generate awareness. We could measure reach by number of fans and shares passing the sandwich on further. But if some sees the post, gets hungry and goes to the store to buy the sandwich we still don’t have a direct measure of ROI.

    Marketers make leaps of faith with traditional advertising all the time. I think it is just harder with social media because it is so new.

  • Well said Keith. Thanks for the superb comment.

  • rob petersen

    It is always the burden of newer media channels to prove the most. According to Nielsen, only 18% of TV campaigns prove ROI; yet, for brands that can afford TV, it’s usually where over 50% of their media budget goes. Thanks for your comment, Keith.

  • Thanks Rob and Mark.

    And thank you Mark for keeping comments on your blog. I agree with what you said on Michael Stelzner’s podcast.

    These comments need to happen here with the post and on your platform. We would all get lost trying to have this conversation on Twitter.

  • Pingback: Najbolji linkovi s interneta, 12.-16.5.2014. « planb.hr()

  • Steve Cassady

    Great Article Rob. I really appreciate the links to the source data. A couple other challenges with social media is that some longer term benefits take a sustained set of activities and you can get a lot of cross over across channels with social sharing that adds challenges. I recollect one study showing a lot of views came through email sharing of links.

  • Pingback: Social Strategy: 3 Paths to Social ROI | Social IMC()

  • Pingback: Social Marketing: 3 Hard Facts to Avoid the "Social ROI Bait & Switch" | Social IMC()

  • Pingback: Debunking Social ROI: Time for Metrics not Intuition | Social IMC()

  • Pingback: How to build a strategy for social influence in 8 steps |()

The Marketing Companion Podcast

Why not tune into the world’s most entertaining marketing podcast that I co-host with Tom Webster.

View details

Let's plot a strategy together

Want to solve big marketing problems for a little bit of money? Sign up for an hour of Mark’s time and put your business on the fast-track.

View details

Close