The ROI within social media has long been a bone of contention, and seems likely to become ever more so, with the equally lightning spread of both social media use and savage budget cuts. In a tightening economy, businesses have to make sure that they’re getting more return on their marketing investment.

‘Inability to measure ROI’ was named by marketers as one of the most significant barriers to the adoption of social media tactics by their organization from a poll quoted by MarketingSherpa.

So why should your company be in the social media arena?

1. To engage your audience: it’s where your audience are, and shapes how they think.
2. To generate referrals – A customer is worth far more than their initial spend with your company: you need to factor in future purchases and the influence they may have through social media.
3. To stay competitive: 44% of the Inc 500 reported social media was very important to their business/marketing strategy in 2008.

But are the old metrics of online ROI still applicable to social media?

Measuring the impact of online advertising used to be relatively easy. It was all about analytics: Unique Visitors, Page Views, Cost per Clicks. But those engaged in social media must now attempt a way of measuring not just the online advertising within social media, but the framework surrounding that advertising.The IAB’s ‘Social Media Ad Metrics Definitions’ have gone some way to filling the gap, by clearly defining three platforms, and then provided metrics by which the effectiveness of each might be measured when planning a campaign. They include:

• - Social media sites: Unique Visitors, Cost per unique visitor, Page views, Visits, Return Visits, Interaction rate, Time spent, Video installs, Relevant actions taken.
• - Blogs: Conversation size (no. of sites, links and reach of a conversation whose content includes conversation phrases relevant to the client), Site relevance (Conversation density, Author credibility, Content freshness and relevance)
• - Widgets and Social Media Applications – Installs (no. Applications), Active Users, Audience Profile, Unique User Reach, Growth, Influence, Installs – (no. installed per User)

However, according to Augie Ray, “Perhaps one of the most concerning aspects of this report is that a reader might get the idea that every action is equal. The report suggests that “Comments posted” are worth measuring, but it says nothing whatsoever about sentiment within those comments. In the entire report, the following words do not appear even a single time: “Sentiment,” “Attitude,” “Rating,” “Positive,” and “Net Promoter Score.“  Check out his post on The Customer Collective to see his ‘dimensions’ by which clients should analyse a blog’s suitability for their brand.

I’m still wrestling with the social media metrics though, and nothing I see above has really told me about anything other than new media versions of traditional media campaigns: where to place your ad, sponsored widget or sponsored conversation, and how to judge its effectiveness.  How about real social media, finding out how your forum is contributing to your reduction in online support, how customer reviews are affecting sales path, whether your 30 second TV spot crowdsourced in an innovative UGC campaign really made your audience feel engaged?  It’s really not all about online advertising anymore. It’s about what else is happening in the social networks, very likely somewhere your company isn’t.

But you’ve got to measure something to know if what’s working and how …

The ubiquitous Jeremiah Owyang provided an excellent guide on how to measure your social media programme as far back as 2006. (Don’t let that put you off though: it’s still completely relevant.) He starts off with the basics: if you haven’t got a goal, then you can’t measure against it. Then build in measurement of this before you launch – not as an afterthought; as part of the process.

He guards against trying to measure it all – it can lead to ‘Analysis Paralysis’ (and don’t we know it)

Importantly, he exhorts us to monitor alerts as they happen, “A negative meme, an exploding battery could shatter your brand: are you watching in real time?” and finally, he helpfully provides a list of attributes to measure:

• - Activity (Web Analytics of blog or site)
• - Tone (Sentiment)
• - Velocity (Spread over time, URLs, Trackbacks)
• - Attention (Duration on site)
• - Participation (comments, trackbacks)
• - Many qualitative attributes (comments, what did they say, what did they mean)

So where does that all leave the ROI question?

Divided, I’d say, into three main camps.

The Deniers: What, really, is this obsession with ROI? This is the group who are most resistant to any attempt to measure social media; possibly because past attempts have been so clumsy and obviously missing the point.

The Definers: Never mind the community stuff. Just give me the click through rate. Please. IAB’s new metrics were made for this group. They are the ones who’ll be the best audience for the new definitions, and are likely to be hugely comforted by a large benchmark and a level playing field upon which to chalk it.

The Dedicated: It’s not a perfect science, and it’s a lot of work. But we’re getting there. This group are realising the importance of using every available system of measurement we have: web analytics, buzz monitoring, community management listening – the whole gamut – to try to bring in as near to a 360 degree picture of people’s reactions to and interactions with, a brand, as is currently possible.

I’ll leave you with this opinion from MetricsMan:  a really useful resource on all matters social media and PR ROI:

“ROI is a financial metric – percentage of dollars returned for a given investment/cost.  The dollars may be revenue generated, dollars saved or spending avoided.  ROI is transactional.  ROI lives on the income statement in business terms.

Value is created when people become aware of us, engage with our content or brand ambassadors, are influenced by this engagement, and take some action like recommending to a friend or buying our product.  Value creation occurs over time, not at a point in time.  Value creation is process-oriented.  Value lives on the balance sheet.

From a sales process perspective, the ultimate value of a social media program may be in increasing the number of people who are likely to buy our products and services.  Other programs may be designed to improve or protect corporate reputation or to build and enhance brands.  Much of this value is said to be intangible.  It is goodwill that becomes tangible at the point in time a transaction occurs.   When buying decisions happen, your investments in marketing, brand and reputation work together.  They become tangible.  You can measure the ROI.

Many of the well-intentioned but misguided attempts to rename or reinvent what ROI means in social media – return on influence and return on engagement probably getting the most play – seem to be the result of an inability to distinguish value creation from ROI.”

Via.BrandRepublic.