Social Media Is NOT Free

Ever been in a meeting with a senior executive who says, “So why is your budget this big? I thought we were relying on Twitter and Facebook and all that social media stuff more. And that’s free.”

There’s a widespread myth out there that social media is free. It isn’t. For a social media marketing campaign you need people, time, and technology – all limited, non-renewable resources in most marketing departments.

In fact, maybe the executive who poses a question about social media being free doesn’t understand that there is a near 100% overlap between the items that go into the marketing budget and the resources that generate nearly all of the company’s revenue. Think about it:

• Head count
• Digital/online marketing
• Advertising
• Call center(s)
• IT (software, hardware, bandwidth, support)
• Marketing (collateral, email, creative)
• Sales
• PR
• Events (webinars, trade shows, conferences))
• Accounting/Compliance/Legal

Aren’t those the major marketing cost silos in your company? And the silos that generate new business and new revenue for the company? So, given that, why wouldn’t a business invest in social media and other marketing tools? The question becomes, “Where is the money to fund my social media plan for 2012 going to come from?”  (It’s almost a given that it isn’t going to magically appear  — to fund new initiatives, chances are you’ll have to spend less somewhere else.) 

When making the case for the return on your social media investment, you’ll want to look at two primary areas: cost reduction and revenue generation. Where can social media help to cut costs? For many companies, it’s in customer service and business intelligence or market research. (Solving customer service issues through online interaction, especially by local managers and agents, brokers or channel partners, is the #1 area where companies are finding savings, although a good multi-channel distributed marketing automation system may be the best place to cut costs in large marketing organizations.)

On the revenue side, top managers want to know whether new spending will result in more transactions, more new customers, increased customer loyalty, and higher revenue. Unfortunately, that’s where many social media experts run into a brick wall. They understand how to measure the non-financial impact of social media (website visitors, click-throughs, impressions, delivered emails, Facebook friends, Twitter followers, social mentions, etc.).    

But traditional marketing managers and social media mavens alike seem to have trouble with the financial impact of social media. And the truth is that business executives don’t care about website visitors, Google Analytics, Twitter followers, and the number of Facebook or Google+ friends a campaign generates.

Management needs to spend money where the company can make money.  So simply measuring and reporting on social media in social media terms isn’t good enough to build a business case for social media spending. 

To do that, we have to go back to Business 101, and look at changes in company revenue that can be attributed to social media. For instance, if the company was growing at 10% year over year (YoY) before the social media campaign started, and it is now growing at 20% now, then social media increased growth by 10%, right? Wrong. Why? Because spending also increased – and there are other factors that have to be measured.

Looking only at YoY growth before and after social media marketing started shows only that something happened to change the baseline, not what changed it. For that, you have to create activity timelines, and match them exactly to sales revenue, week by week, and day by day. How many transactions took place?  How do the transactions align on the calendar with marketing efforts? How many new customers have been added – and how does the new customer timing track against marketing?

The mathematics geniuses behind marketing metrics call it transactional precursors – what happened, when did it happen, and exactly how did it affect revenue. Michael John Baker, author of Marketing: Critical Perspectives on Business and Management wrote that the search for patterns requires overlaying at least five (and often more) different timelines to see how activities, social data, Web data, transactions and loyalty metrics compare. “You must gather the data and build the equation that proves the relationships between them, and eliminate the doubt by isolating the patterns and looking at the real costs (including any savings) and revenue gains are,” Baker wrote.

Luckily, there are a number of tools that have the metrics to prove social media’s ROI – marketers don’t have to morph from mad men to math men just to get their budget approved. What social media ROI tools do you use? Let us know!

Cartoon credit: The amazing Geek & Poke blog is filled with cartoons sure to have anyone interested in technology laughing out loud.  The cartoon above is used under a Creative Commons license.