I’m excited about this month’s theme, because, to me, it gets at the heart of the matter for all organizations that want to take social media seriously: if using social media doesn’t lead directly to tangible financial gains for the organization (making more money or saving more money), then scrap it and do something else. Likes, followers, shares, positive mentions, blah blah blah -- none of these are valuable in and of themselves; they only have value if they lead to selling more stuff or making more money off the stuff you already sell.

This isn’t rocket science, of course; it’s called managing a P&L, and successful businesses have been doing it for a while now. And in the brave new world ushered in by the advent of social media, nothing’s really changed in how organizations should manage their P&Ls -- although you wouldn’t know it by the almost mystical tones in which most folks talk about social media and its effect on organizations.

What I want to do here, in contrast, is to bring us back down to earth a bit and treat social media like any other tool organizations use to improve their business by walking through some ways to describe social media’s affect in hard, rather than soft, terms.

Intermediate Benefits

To approach social media like any other element of your business, the most important concept to get under your belt is intermediate benefits.

Intermediate benefits are things like “saving employees an hour a day through improved document search,” “increasing a team’s capacity by providing a workflow tool,” or “increasing traffic to the company website by posting blogs more frequently.” These are all good things, but in and of themselves, they don’t say anything about selling more stuff or making more money off the stuff we already sell -- and this is where the magic happens, right?

What we need to do, therefore, is to push beyond these intermediate benefits and get to the benefits that result from them: Are employees selling more stuff with the hour a day we save them? Does our team’s increased capacity lead to higher margins? Does the increased traffic lead to higher sales through our website?

Unless you can find the tangible, financial benefits that result from the intermediate benefits you deliver, you’ll struggle both to get support for your social media efforts, as well as prove the success of the efforts you do happen to get funded…neither of which is a good position to be in.

As I said earlier, none of this is rocket science; it’s pretty much Business 101. But in the world of social media, given how much confusion there is about not only how to calculate ROI but whether it’s even necessary, you’d think that ROI basics were the Google search algorithm or something.

Financial versus Nonfinancial Outcomes

Another way to drive past intermediate benefits to get to the real benefits an organization will care about is to frame it in terms of financial versus nonfinancial outcomes.

The best discussion of this in the context of social media is definitely Chapter 15 of Olivier Blanchard’s Social Media ROI: “ROI and Other Social Media Outcomes.” The whole book is a must-read, as far as I’m concerned, but if you read only one chapter, this is a good one to pick.

He defines the distinction between financial and nonfinancial outcomes like this: “financial outcomes manifest themselves in two ways: cost reductions and increased revenue. Nonfinancial outcomes are everything else” (p. 210). Here’s some examples he provides:

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But it’s how he relates the two that I find critical:

[N]onfinancial outcomes are intermediate metrics. They fill the gaps between the investment and the subsequent gain and return…They give us snapshots of what happens between the time a program is assigned its budget and the time it yields a measurable return. (p.212)

Thought of this way, nonfinancial outcomes aren’t less important than financial outcomes; but they need to be viewed differently because they are of a different kind than financial outcomes.

He illustrates this well with the following example:

ROI = (30,000 Twitter followers – $10,000) ÷ $10,000 = X. What would be the value of X? Dollars or followers? Exactly. (p.218)

“You cannot calculate ROI if your investment is calculated in dollars and the gain from it in something else” (p.218).

The Final Word

So much for what we mean when we talk about ROI -- social media or otherwise.

In the next post, I’ll turn to give an overview of how Blanchard connects the dots to link investment to financial impact by way of nonfinancial impact and then discuss some specific examples drawn from my day-to-day work with clients to illustrate the usefulness of Blanchard’s approach.

Until then, I’d love to hear what you folks out there think: share your successes and failures with finding ROI for your social media efforts, tell me I’m crazy for looking at social media using the almighty dollar as measuring rod, offer your own approach to justifying your organization’s social media efforts -- jump in and let’s get the conversation started.

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