By Chris Bucholtz
Back when people were pooh-poohing social media and social CRM on the grounds that it was too difficult to determine return on investment (ROI), Kathy Herrmann was one of the few coherent voices in the crowd shouting back, “Yes! Yes, you can!” SCRM ROI has become slightly less mysterious and slightly better understood in the last couple of years, but Kathy’s still on the forefront of helping businesses realize that there are techniques to measure the effectiveness of SCRM and to put it into terms even your accountant could understand.
Working with Dr. Natalie Petouhoff – another early advocate for SCRM backed by business metrics – Kathy’s consulting practice includes a center of excellence in the business of social business. Already a co-author of the Simplifying Social Business series of ebooks (available on Kindle and Nook), she has volumes in ROI for social customer service and social marketing and PR in the works.
I chatted with Kathy about what it took to develop an ROI strategy for your social CRM efforts. Since every company’s social CRM initiative is different, it’s not possible to crib it from a business book or swipe it from a competitor – but there are some elements that are constants.
CB: In order to establish an ROI measurement that makes sense for any business, is there a starting place? Is it based around the goals of the SCRM effort, or is there another initial consideration?
KH: Like any other corporate initiative, social CRM is no silver bullet. Like any other corporate initiative, you should expect to demonstrate the business case for your social programs which means defining/determining (in this order):
3. Key Performance Indicators (KPIs), and
4. Expected business results (cost savings or revenue generation), including demonstrating an ROI.
What this really means is the rules of business remain in effect when your undertake an SCRM initiative. Additionally, the reality is there is no one way to implement social programs, so any path your company takes should be thoughtfully undertaken – and should also be an outgrowth of your overall corporate strategy.
The ROI is your narrative or underlying story that supports your strategy – and it’s nothing more than a numerical view of your strategy. It reflects monetary gains versus costs. And to determine either monetary amount requires you to have an understanding of your initiative’s potential cost structure and expected outcomes. You can only know the potentiality after you define your strategy.
CB: Does the ROI model vary in complexity with the number of social channels an SCRM effort employs?
KH: Absolutely. Calculating the ROI of social media requires that you can hold three different concepts in your mind at once:
1) Traditional operational activities and metrics (for example, marketing or call center metrics).
2) Social metrics.
3) Business results when social media is applied.
By understanding their interrelatedness and dependencies, you can connect the dots and gain insight into the activities, reach, relevance and behaviors of customers.
My collaborative partner Dr. Natalie Petouhoff and I develop ROI models for companies. We always start with our base methodology but then each company requires customization to their respective smROI model. And the reason is because each social program has its own characteristics that impact the ROI.
For example, a customer service versus a marketing initiative will have different operational metrics impacting the model. ROI will also be impacted by the social channel. For example, determining the ROI of an initiative that is centered on a community versus Twitter activities requires different social metrics.
Our model is always evolving because corporate social programs are as well. In our base ROI model, though, Natalie and I focus on the following areas of potential gains:
1. Increased revenues (from marketing and PR activities).
2. Increased savings from:
a. Call center operations.
b. Customer insights.
c. Brand protection.
d. Lead generation.
e. Product development
f. Internal collaboration.
How many of the above gains a company accrues will depend on the nature of its SCRM strategy.
CB: How difficult is it to “tune” an ROI model to fit SCRM campaigns?
KH: Determining a social media ROI can have challenges, because it requires you to aggregate data across multiple sources including departmental metrics (like marketing or customer service), social metrics, and business results. And no, not everyone can do it because not everyone has the right experiential mix of understanding of traditional business, social business and financial analysis. However, and this is important, social ROI can be determined.
CB: What’s the source of the assumption that ROI is impossible to compute – laziness, a failure to understand the variables, an absence of an understanding of the goals of SCRM, or other factors?
KH: Whew! I face this wrong-minded assumption a lot. I’m starting to think of myself as a cousin to Buffy the Vampire Slayer, only in my case it’s Kathy the ROI Myth Slayer.
I’ve spent a lot of time thinking why so many folks believe the myth of ROI impossibility and I think it comes down to several reasons.
First, as I discussed in the other questions, calculating an smROI has challenges because you have to hold three complex concepts in mind – traditional business, social business and financial analysis. There are a lot of smart people in social circles but many don’t have the necessary expertise to tackle the calculation. So for them, determining ROI seems impossible. That’s not a knock on those folks because they can have great experience in other areas of social business activities (and I for one, can’t always do what they can).
Another common reason that many folks say ROI is impossible to determine is because there can be a lot of unknowns associated with social initiatives. And yes, that can be true – but this is true of any corporate initiative. Dealing with unknowns in calculations like ROI is a combination of science and art. Again, it’s an experience factor.
One of the reasons I manage unknowns so well is because I started out my career as a petroleum exploration geophysicist. The geosciences are an interpretive science and I spent years in the oil industry learning how to convert interpreted geologic data into monetary investment potential. So for me, the unknowns associated with social programs is business as usual.
More recently, I’ve also come to believe the ROI myth persists because of chasm that exists between the “buy” and “sell” side. On the “sell” side are vendors and agencies that have a lower incentive to determine the ROI. In some cases, it can be because of a fear the ROI of their solution or services won’t hold up. And that’s too bad, because in well-designed social programs, the ROI can be quite high. Also keep in mind, that many of the social pundits saying ROI can’t be determined are folks coming out of the creative side of social – and in many cases, they lack the needed expertise to determine ROI. Again, not knocking them because their experience is their experience.
On the other side of the divide are the business leaders on the “buy” side of business. They’re the folks writing checks for service (think agencies) or buying social tech solutions. And because these are the guys and gals paying the bills, they do want to understand the potential business results.
And here’s something to keep in mind. Social media is in a shift right now, moving from the Early Adopter (EA) stage in the lifecycle to the Early Majority (EM). In the EA stage, there’s lowered concern for considerations like ROI. Why? Because programs are lower risk because the initiatives are experimental, smallish, and isolated to individual departments. As an example, think in terms of marketing campaigns here and there.
However, as social moves into the EM stage, this is where companies will get more serious about implementing more holistic, corporate-wide social initiatives. At that level, SCRM becomes a change management opportunity and challenge. And when it comes to change management, the impact will be greater because of the span across people, processes and technology. That’s why the interest in smROI is picking up as well. Before companies undertake such change initiatives, business leaders want a clear understanding the potential business results.
CB: What reaction do you get when you demonstrate your ROI models to business leaders?
Dr. Natalie and I receive initial skepticism when we say smROI can be determined. It’s because there are so many nay-sayers out there. However, once our clients see us perform the analysis, they get excited because they gain a tremendous amount of insight into their social programs. And they gain more confidence in their program’s viability.