Truth and Lies of Social Media ROI

ROI (return on investment) is probably the most commonly used and most misunderstood word in social media marketing today. It seems to have emerged as the go-to buzzword that social media marketers throw at the finance department when they want to relate to them. But two problems exist:

Given the textbook definition of ROI — net profits divided by costs — it is actually impossible to measure exactly the ROI of your social media efforts, because the net profits variable cannot be measured; there are too many confounding variables that contribute to the decision to purchase. Anyone who claims otherwise is BS-ing you. In fact, as reported recently on Business Insider, companies are starting to drop ROI as a metric for success on social (including SocialProvidence, the social media startup I run with my business partner Mike Cunningham).
Whenever someone says he or she will measure the ROI of your social media efforts, they are setting themselves up to overpromise and under-deliver. The entire industry has thus gained a bad rep for not holding itself accountable to business objectives and, specifically, sales (only 26 percent of marketers agree that they are able to measure their social activities). This is absolutely untrue.

Social media is extraordinary because it produces vast amounts of widely available data (more than 500 million tweets per day, 4.75 billion Facebook shares per day). Through smart use of this data, social media is actually positioned to be the most measurable marketing effort in your business’ arsenal.