Acronym

One of the points Shel Holtz made last June at Blog Potomac about selling (any) ideas (but particularly those related to social media) to CEOs was that we need to be fluent in CEO-speak (market share, growth, attracting best talent) in order to sell the idea.

But I also see this as the lifecycle of a new idea. We started with "what IS this stuff?" Then we moved on to "what are associations using it for?" Now we're moving to "What's the business model? What kind of return can I expect?" Social media's growing up.

"...thinking about money generally isn't their job."

How alarming to think that any association staffer, no matter his or her level or "professional" bent, doesn't understand that thinking about money is EVERYONE'S job.

Shouldn't every program/benefit/service be sold in terms of how it can help the association? I agree with Elizabeth that selling it in CEO-speak is helpful.

There are many things out there that you can't attach real dollars to, at least with any true accuracy. If we didn't do them, most advertising wouldn't exist at all. It is those flowers and butterflies that tend to be the things that help people make their purchasing decisions.

When a person fails to understand or agree with an idea that you've explained, it doesn't mean that person is unenlightened. It means you did a bad job explaining it, so try again.

And sometimes it can mean they completely understand what you said, but they just don't agree. I'm always surprised we forget that as a possible response.

I'll second Jeffrey's comment.

As a bit of a social media evangelist I think I just got slapped. As a consultant who has spent her career on the corporate side I fully get the need to make money (I like eating). But I also know I need to take some things on faith. The results I have seen for other businesses and associations, have convinced me that social media is an important business tool.

Everyone talks about calculating the return in investment for social media - why should I spend scarce resources on it? The problem is the return can't be measured until you try using social media. ROI was invented by accountants to decide on CAPITAL purchases - should we buy a new machine, build a new factory, etc.? It is easy to determine the ROI of a new machine - its cost, the potential decrease in cost and/or increase in revenues and the time value of money (subject to numerous estimates and assumptions on interest rates). Social media does not lend itself to this type of calculations - you don't knew the results until you try it.

Olivier Blanchard, The Brandbuilder (http://smroi.net/) has written and spoken extensively on the ROI of social media. The link is to his most recent presentation. He says the ROI is calculated by the gain of the investment minus the cost of the investment divided by the cost of investment. ROI is strictly measured in dollars and cents not web site visits, blog comments, etc. (a business metric not a media metric).

Mr. Blanchard explains his a posteriori process for measuring social media ROI - you try things and measure the results. His process is to establish a baseline before engaging in social media; start engaging and establish an activity timeline (what you did, when). Step 3 is to look at revenues (number of transactions, net new customers, revenue per transaction) in the period after and during your social media activities. Step 4 is to measure the transactional precursors (negative/positive mentions, web visitors, blog visits/comments, blog to web click throughs, etc). Then overlay all your timelines and look for patterns of uncertain impact, impact to see if you can prove a relationship. Hopefully the result is that some of your social media activities either reduced costs or increased revenue.

So how do I tell an association executive what the ROI of a social media program is when I won't know until after we start engaging in it. I don't think you pre-determine the ROI of social media other than by looking at other associations and businesses that use social media and what their results have been.

Mr. Blanchard wrote in his most recent blog (http://thebrandbuilder.wordpress.com/2009/11/18/whats-next-operationalizing-social-media-huh-what/): "Having a Social Media presence nowadays is merely the equivalent of what being listed in the yellow pages meant ten years ago. It simply isn’t enough to be there. And if you believe it is, you have seriously underestimated the situation."

He then wrote: "Don’t get me wrong: The vast majority of business managers and C-suite executives still need to be shown that Social Media isn’t just a silly fad. That it is a legitimate business discipline worthy of not only investment but special attention. And perhaps most importantly, that by not understanding that Social Media fits in their business toolkit, they will begin to lose increasingly large chunks of market share (among other things) to their smarter, more strategically-minded competitors as early as H1 of 2010. These are realities and facts that still need to be conveyed to decision-makers in the business world. No question."

So association executives how do I convince you that social media needs to be a part of your business toolkit? I can't tell you that if you spend $X on social media you will save $Y on costs and gain $Z in revenues. The same way I can't tell you the ROI of your government relations department, call center or the results of the new marketing/membership campaign. So please help me so I can help you (and I'm not even a social media consultant, I'm a risk manager).

As the CEO whose participation in this discussion triggered this line of thought I feel compelled to correct a possible oversimplification/over-generalization.

Yes, an association never has the luxury of ignoring the financial aspect of ANY activity that consumes resources (financial, time, management and governance attention, etc.) But it is inaccurate (not to mention unfair) to characterize CEO's as looking through purely financial lenses at every issue or to assume we can ONLY be convinced by financial arguments.

Speaking just for myself: in my organization, with my volunteer leadership and with my staff, we are disciplined to ALWAYS look for the return on investment from any activity that consumes resources, but we are mindful that return on investment can be either financial or strategic. (In rare but incredibly energizing instances, a program will provide a return on investment in BOTH strategic and financial form. Those are the ones that let you sleep at night with a smile on your face.)

The challenge for the organization is to ensure enough financially profitable activities to sustain the non-financially justified but strategically critical. The hardest part of this is exercising the discipline to remain pragmatic, hard-nosed and unsentimental in your assessment of the TRUE return on investment (both financial and strategic). It is simply TOO easy to become so excited about something new with seemingly limitless potential and talk yourself into phantom strategic returns on the investment.

These are interesting comments...my thoughts regarding the financial/revenue driving side echo Kevin H's...especially in American culture, people (members, customers, everyone) view value through the money lense---driving revenue shouldn't be looked at as a necessary evil, it should help us determine value by asking What will people pay for?...if they will pay for it, they value it...so strategically, we need to develop programs that people will pay for...I can't think of a product or program we put on that doesn't have some type of monetary cost for either our members, our exhibitors, sponsors, etc. Somebody pays for it, nothing is free!

I think social media is causing sort of a collision between our classic ideas of how to deliver info and drive revenue on the web--the old model basically is Step 1, add content, Step 2, get traffic to the site, Step 3, sell as much advertising as possible...with social media, we have great tools to help increase engagement and interaction online (and traffic too!), but through the ownership that the community takes of the system, they may be less excited about their online community looking like the Las Vegas strip, or being inundated or controlled by people trying to sell them stuff. We should be searching for the balance between revenue generation, content, and community/environment...and finding ways for our suppliers/sellers to get engaged in the community as friends/industry associates/resources and not salespeople, along with some structured, tasteful advertising that is limited and creates demand...this is all theory in my head, would love to hear other's thoughts!

Thanks for the comments everyone! This is really great feedback, and you've helped clarify this topic greatly (both for me and anyone else reading along).

@Kevin: Indeed, it should be everyone's job to think about money, but I don't think that it always is in a lot of places. Just an observation. The further removed an employee is from regular involvement in bigger-picture, strategic decisions, the easier it is for that person to pay less attention to money matters if it's not otherwise a thoroughly ingrained part of the organization's culture.

@Mark: I apologize for drawing you back into the conversation by name, but I'm really glad you commented again. It's a great point to make the distinction between financial return on investment and strategic return. My saying that a CEO only considers the financial side was likely too shortsighted, but my hope in stressing the importance of thinking about money is to simply push social-media proponents into the frame of mind of considering ROI really critically. As Matt said, one might eventually conclude that a new project will not have a direct financial return just by its nature, but by devoting some thought to reach that conclusion, it pushes the proponent to then consider this next question: if you can't directly make money doing this, then what makes it strategically valuable enough to justify subsidizing it via other, revenue-positive endeavors? I think people who are pushing new ideas, not just ones related to social media, get so excited that they don't come to the table prepared to answer that question.

@Jeffrey and David: We have here an interesting disagreement about disagreement, so I'll try to strengthen my argument about strengthening arguments. (Mmm... meta.) Anway, you make an excellent point that a person can fully understand your argument but just disagree. I contend that it's never absolutely impossible to change a person's mind about a belief; it may just be monumentally, cosmically difficult (i.e . effectively impossible). Setting that aside, my reason for that statement in bold was to stress the importance of crafting arguments that resonate with your target's frame of mind, not your own. If you find that the other person disagrees with you, you can dig deep to find out what underlying beliefs and mental models are the root of that viewpoint and then craft your argument to directly address those specific beliefs. That way, you at least improve your chances of success. As Elizabeth and Matt put it, much more simply and eloquently, if you're trying to persuade a CEO of something, make your case in "CEO-speak."

RE: David Patt's excellent post (and thank you for making me aware of Olivier Blanchard's work, which I was unfamiliar with).

I think that puts a little bit of a concrete frame on what I have vaguely described as a "strategic return on investment."

It is not only harder to document in purely mathematical terms, but can also only be seen after the fact. It can't be as confidently predicted ahead of time. It takes a bit of a leap of faith - - - commit now, and be patient for the proof you were right after you give the "investment" a chance to mature.

@Leslie, thanks so much for your comment here. For some reason, our system flagged it and didn't publish it right away, so I hadn't seen it when I responded Thursday night. The explanation you've related about how to think about the strategic ROI of social media is excellent, a great resource for anyone out there thinking about how to promote social media to their organization's leaders.

For the most part, I agree that measuring social media ROI is extremely difficult, if not impossible, to do in advance, without simply experimenting first. Given that, I think it's then incumbent upon a social media proponent to acknowledge that directly and explain how ROI might be measured indirectly in the future, after initial efforts. The social media proponents who are prepared to address this (whether in financial terms or not) will be much better off.

The only thought I might push back on is the idea that investment in social media can never be evaluated in financial terms. Some others have mentioned other strategic endeavors such as lobbying or advertising that don't have direct returns. I agree that this is true, but at some point you still have to weigh the strategic returns against financial investment. If your organization is spending $100 million a year on lobbying, you darn well be making a whole lot of progress on Capitol Hill (I use a big number to make a simple example). Otherwise, you know you're overspending. I think the same can be said for social media, especially as the trend grows to hire full-time social media managers. As a CEO, I would want to have a good grasp of how to weigh a full-time salary expense against the return (in whatever form) that that person's work would create. (Lisa Junker's recent post about social media staffing has some good thoughts on that topic as well.)

As Elizabeth pointed out, social media is "growing up," and I see a time in the not-too-distant future where social media is something that associations just do (like communications, lobbying, advertising, etc.), but in these early, formative years, the ROI question will continue to be a sticky one.

Thanks again, everyone.

I'm sorry Leslie felt slapped :O) but her analysis of ROI is interesting: to go slightly further than she did, the investment perspective (with appropriate adjustments to reflect financial and strategic returns, short & long-term) also requires "the investor" to make appropriate comparisons for IRR (internal rate of return) on a variety of alternative investments, not just one.

Because we all deal with scarce resources, in the form of HR, finances, AND member attention, social media has to be put into context with a variety of other media channels, member programs, and association-wide initiatives. My only real beef with the current thinking regarding social media is the hyperbole supporting it from what we old fogies with IT backgrounds called "super-users." The sense that we need to re-explain something to non-adopters so they get it reflects our own conviction in its future potential, which can impede us using effective logic and analysis and "CEO-speak" to convert the C-suite decision makers to understanding the full value of this channel.

Then again, social media and some of its components need an an ongoing analysis that's consistent with any channel or technique we use in this general space: website design & management, content management, e-communications, online advertising strategies, mobile text marketing, db management & analytics. They each have their own unique dynamics and IRR calculations, and I suspect many of us are foot-dragging to see someone build and articulate the true business case for social media.

Of course, few of us probably DO look analytically at our various channels with an ROI perspective, so the other thing holding us back with social media is that it requires a little zero-based budgeting at the expense of more established media. I'm not sure, but I think the last dot-com bubble cured us of craving "first mover advantage" as channels or users--but eventually we'll have to sort out how much organizational effort and expenditure to allocate to the general function, and then to choose platforms in a way that maximizes the likelihood that we concentrate on the key platforms (Second Life, anyone?)

To reinforce with a few real-world, ROI benefits I believe association leaders are looking for in social media solutions: I think they want to see social networking help boost membership acquisition and retention...increase non-dues revenue, including fee-based professional education... online/offline special events participation and interaction...plus industry sponsorship and advertising revenue.

I am lucky enough to serve as the Executive Director of an association that allows me the luxury of not looking at many activities through a financial lens. As a number of contributors above noted, the real concern, for me, is return on investment - what are we getting for the time and energy taken up by social media?

So, I'd love to connect with others - in particular those who need not focus solely on financial return within their associations - to start a roundtable discussion regarding measuring the ROI of social media in the association context. Anyone game? If we want really to walk the talk, could do this on google wave and try out new(er) media in the process. There's lots of great information and resources, let's pool our expertise.

Susan

Susan Kistler
Executive Director
American Evaluation Association
susan@eval.org

p.s. And, for better or worse, I am definitely a social media evangelist, but hoping to formalize and test the value proposition. Personally, I also don't think that we always give enough credit for some of the potentially unexpected outcomes. I started a 30-day trial during which I committed to posting to Twitter each day this fall to see if there was value for my association (follow @aeaweb). What did I learn? Yes, and I'd love to discuss the value to the association. But more intriguingly, and truly surprisingly for me since my view of twitter was not particularly high, it has made me a better ED and significantly increased our capacity to serve our members.