Beth Harte makes a strong case that ROI often can’t be calculated for any marketing campaigns, because isolating the financial data for ROI = (net profit / sales) * (sales / investment) is usually difficult — and thus it is unfair to hold social media to a “prove the ROI” standard. We responded over at the Brandflakes blog:
Mathematically this is the same formula as ROI = net profit / investment, but I quibble. The real purpose of ROI calculations is to make choices between alternatives. If you can make 8% by investing a million in the bank, and only 6% with a marketing campaign, pure math would tell you to keep the money in the bank.
However, this is why ROI logic often fails. Marketing is a living, breathing function to keep businesses alive, so even if ROI were below the alternative “park it in the bank” rate, if you shut off marketing, you’d damage the future business. Advertising falls under marketing and social media falls under advertising (or PR, quibble), but the logic of those internal functions is the same.
It is healthy to try to determine ROI to make choices among best possible paths, but businesses must also consider:
a – is the function necessary for basic competition?
b – what is the risk if we turn off the function, and failure to perform damages other parts of the business operating system?
So it’s not just what you do, or if what you do beats the other action. It’s what could happen if you don’t do it at all. This may be the best argument for social media.