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By Thomas Baekdal - December 2009

7 Myths of Social Media ROI

The buzz around social media return of investment (ROI) is just staggering. It is a good sign that this social media thing is moving away from being an experiment, to actually be part of a business strategy. And every business strategy and business plan must be focused around making money.

Before we start talking about social media ROI (in articles to come), we first need to debunk some of the many myths and misconceptions that are floating around.

Myth #1
- You can measure social media ROI by looking at volume of fans, level of engagement, downloads, number of links etc.

Wrong! None of these things provide you with insights about any meaningful return to what you have invested. Getting 1,000 more fans doesn't mean you will sell 1,000 more products. Just because people link to your viral video, doesn't mean that people come flocking to your store.

In the article "100 Ways To Measure Social Media," you can find many very useful tips on what you can measure, but it doesn't tell you how those translate into Return of Investment.

Return of investment is about making money. To measure that, you first need to find out what your product is.

But, not everything is about selling goods. Take newspapers or professional bloggers. What do they sell? Articles? No, those they give away for free (unless you are really old and called Rupert Murdoch). You make money selling ad impressions. Which means that blogs sell "quantity of ad impressions," or "conversions of product affiliations" (meaning how many people you can persuade to buy the product you are advertising for another company).

You simply cannot ask "how many fans do you need to sell more products, or more ad impressions on your blog?" That just doesn't make any sense. You still need to persuade your fans to actually buy the product. Your return is when your product is delivered to the person buying it.

You need much more than just fans. Getting more fans are a just step towards getting a return, it is not a return in itself.

Myth #2
- We need to get as many people to visit our website

Wrong! You need to sell your product to as many people as possible. You should only bring people to your website if it helps to get them to buy more products.

Consider this. Many companies merely use their social profiles as "link profiles," linking to their website. This is the old way of doing things. It is like a poster that encourages you to go somewhere, where you then decide buy the products.

You end up with Twitter feeds, linking to your websites, linking to your online shop, linking to the checkout process. And that is just too many steps.

At every single step, you will lose customers. By the time they finally click the buy button, you have only a fraction of the energy and volume you started with.

Sell your products as close to where people are. If you give people advice, and are using Twitter, then change the format so that it fits 120 characters (then you can always expand it with more in depth articles, on your website).

You need to make Twitter and Facebook a primary channel, just like your website is a another primary channel. Move your checkout process directly to Facebook (like Resource Interactive is doing with "off the wall.")

Myth #3
- Marketing works

It doesn't, at least not the way you think it does. There is a really strange thing about marketing, and its ROI, that most marketers know instinctively but have a hard time explaining.

Marketing doesn't pay. No matter what you do. A poster, a tweet, an article on a website, a TV ad during Superbowl or anything else. None of these things produce enough return of investment to cover the cost of doing it.

You don't buy the new Ford Fiesta just because Ford posted a tweet about it. You don't buy the new Nook (ereader) from Barnes&Nobles, just because there was an ad for it in a magazine.

Every single thing you do is, in itself, not worth the effort. It doesn't provide enough return of investment.

However, we also know that if you don't market you products you go out of business. Communicating your products to the world are essential to your success. The old saying "build it and they will come" is perhaps the biggest myths of all.

So, what is really going on here? If every single ting you do is a waste of money, and that not doing anything is even worse? How does marketing work?

The answer is that marketing works because the sum of its part is much greater than the whole. Nobody buys a new book just because you see a tweet about it. But, if you already read some of the author's previous books, if a friend has recommended it to you, if you see other people discussing it, and if the description and reviews on Amazon are interesting - then you buy the book.

Marketing works when you influence people via many different channels and many different methods.

This is even statistically proven. EngagementDB found that there is a direct link between how many channels you are on, and the level of engagement you get in return. And Microsoft Advertising Institute found that banner ads have no effect if people just see them once. It is only when they see them more than once, in different settings, that people react to them.

This is the most important thing to remember when measuring Social Media ROI. If you measure each individual thing you do, you will end up with a loss. But, when you measure all your communication as a whole, then it suddenly makes sense, and you start to see a positive result.

Twitter alone is not worth the money or time you put into it. It is only when you combine Twitter with other channels that it starts to make sense.

Myth #4
- It is just about marketing

No! The real power of social media is its ability to communicate more effectively across every department, to cut cost, and to make customer support more personal and effective.

Social media is actually not very good at attracting new customers, instead it strength lies in the way it motivates existing customers to spread the word.

This also means that most normal marketing "techniques" doesn't work in the social world, because you need fans to get more fans. And you focus your energy on your existing fans.

You do not measure the effect directly (which tends to be very low), but instead what the indirect effect is. It's not about how effective you are in relation to your fans, but how effective are your fans in relation to the people they know.

Myth #5
- Return of Investment is all about the Return

It's not. You also need to look at how you are investing your money. It easily cost $100,000 to put an ad on TV, but using Twitter or Facebook is practically free + spending about 15 minutes per day tweeting and replying (which is about $4,000/salary).

Which one is the better investment a TV ad for $100,000, or engaging your customers in a long term relationship for $4,000? (BTW: that is probably one of the easiest questions to answer.)

This is also why so many companies are still focusing most of their time on traditional marketing. They are trying to optimize their return (by making flashier print ads), but are failing to look at new investment opportunities (social channels).

Or they focus on getting more return for their department (marketing), and fail to see that Twitter is about much more than that (sales, customer support, contact with individuals - e.g. the people who actually design the products)

Getting the right return is as much about investing in the right things, with the right people. And that is the real trick to Social Media ROI.

Myth #6
- We need to measure Social Media ROI

Wrong. You need to measure Customer Communication ROI; it is not really just about social media. You need to measure it across all your channels (myth #1 & #3).

Myth #7
- It's all about money

Well, it is. But, the best way to get money is not to focus on earning more money. Instead, you need to focus on creating remarkable products, having meaningful and relevant interactions, and really engage with people around you.

Apple is a textbook example of this. When they fired Steve Jobs, and instead focused on "making money," they completely lost track of why they made computers, and as a result, their products became mediocre, and they nearly went out of business.

Then Steve came back, and the first thing he did was to refocus the company around making remarkable products. Since then Apple have soared in profitability.

It is the same with Social Media. When you focus on "selling products," then you end up sounding like a used-car salesman that nobody wants to follow. It is only when you focus on being remarkable, that people will notice. Only then will you get a "return of investment" ...only then will you make money.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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