ROI: The forgotten metric

Online advertising has been going from strength to strength since the first banner ad was served by AT&T in 1994. AT&T knew people would click its ads and oh boy how they did!

One of the main reasons for online advertising success is measurability, or rather, the ease of measurability. Being able to quantify the outcomes of your advertising efforts to every penny spent is something no other marketing medium offers.

The methods of “spraying & praying” done by traditional brand marketers simply would not fly in the online space. No longer could you rely on the fact that because Jon Robbie mentioned your company on radio five times in a morning, that this would be seen as a job well done. The questions that would remain unanswered are, well how did these radio ads contribute to my bottom line? How many people took action after hearing the ad? The answer in a traditional sense is generally “Uhhmm, I don’t know, but it could be a lot!”

Reach and Frequency have now become the outdated great grandparents of the measurement world. Yes they’re still important, but they don’t tell you much anymore.

Deeper measurability has become the new benchmark in the wake of another recession where businesses across the board are demanding greater accountability. Businesses are now forced to dedicate resource to areas that bring the most amount of value and it is key to be able to measure the entire sales process in order to attribute this value. And what more important metric to pay focus on than ROI!

Yet, something strange has happened online. Now that the Internet has become a popularity contest with social media taking the headlines, businesses are starting to pay more attention to the number of fans or followers they have rather than to how these people are contributing to their bottom line. The reason I highlight “people” is that with this wave of social media we as brands or companies seem to have over complicated something inherently simple. Firstly fans are people and these people have needs and wants, which they communicate, associate and/or engage with in order to satisfy.

This fundamental socio-economic idea brings us back to basics and also brings us closer to our customers. Just doing social media activity for the sake of having a fan base it is not going to generate sustainable growth in the long-term. Running social media activity without an emphasis on how this is contributing towards your bottom line would be like an ice-cream seller going to the park and making friends with everyone, telling them about how awesome his ice creams are, meanwhile leaving his ice-cream cart on the corner of the road and not bothering to get people to come buy. Sounds like a fun day out!

With all activities that we carry out online, there needs to be at least one eye focused on ROI. Being able to attribute return on investment allows you to know what is working and what isn’t. That’s all you can ask for as a businesses owner. This process of elimination will lead you to understanding where the greatest value for your business lies, or if you need to be asking even harder questions about your product or service.

So why with the social media revolution have we veered away from this all-important metric? Well social media activity falls within the same mindset of traditional marketing efforts just with a deepened involvement. Less accountability and more “fluffy” engagement metrics are acceptable in this sphere where as ROI you cannot hide from. One of the reason we don’t see companies holding by ROI as much as they should could be down to the fact that it takes particular skill set in order to measure ROI effectively online. You need to know your business, and you need to have some technical/digital know how in order to implement, test and iterate to ensure your numbers are accurate. This is more of an analytical process than a communication or branding process, which often we see social media fulfilling.

If I were to take a step back and revisit my business fundamentals, I would start with a process of elimination myself. Starting off with marketing activity that is most profitable and work from there.

Let’s look at the ice cream example, which one would you choose:

1. I can pay for a stand at the entrance of the park and station myself there to sell delicious ice creams on a hot day as people enter.

2. Or I can leave my ice-cream stand at the entrance and go into the park to make friends with everyone while promoting my ice creams and hope they come back later to buy from me.

The first example would be a simplistic analogy for online advertising efforts and the second would be unfocused social media activity. Online advertising where you have done the research to know where your target market is, and you are advertising a meaningful relevant message that appeals to your markets needs & wants will 9/10 times drive a higher purchase rate (conversion rate) and generate greater ROI than making friends and playing Frisbee in the park.

So from an online sense what does it take to calculate ROI? Well to be frank, you need to know your business & you have to get your tracking setup correctly. If you know your business, you’re margins, and revenue per product then you can start to assign value to every person that visits your website. Setting up tracking using free Google products like Adwords & Google Analytics can be done without having advanced technical knowledge or background. I will get into the methods of ROI modeling, and the technicalities around setting up tracking to measure this in a follow up post, but for now, I think its important we all agree to remember the most important metric of all — ROI!

DISCLAIMER: I haven’t said that it’s not possible to measure social media ROI — just that very few do it, or do it well.