One of the question frequently asked about Social CRM or Social Media is What is the ROI? This is a great question to ask given the need to justify any major investment, especially after the great recession. Unfortunately, many people (and this includes so called “experts” or “thought leaders”) are missing woods for the trees while trying to answer this question.
It is important to remember that Social CRM is the business strategy of engaging customers through Social Media with goal of building trust and brand loyalty (for more on Social CRM definition, see this).
Strategy is a plan of action designed to achieve a particular goal. Social CRM is a plan of action to build Trust and Loyalty. Social CRM is not a “technology”, “system” or “processes”. While executing Social CRM (strategy), Social Media technology (tools) will be used to achieve the goal (building trust and loyalty), but tools are different from plan. It is very important to remember this distinction between strategy, tools and goals.
Social CRM (strategy) ROI depends on how well Social Media technology (tools) is used for achieving the goal (building trust or loyalty). Return on Investment (ROI) is associated with how well the goal has been achieved and resultant business benefits given the investments and not with tools Per se.
In other words, we need to define measurable Social CRM goals and a clear plan of action for achieving them before embarking upon any Social CRM initiative. And remember, ROI is not associated with Social Media as they are the technological tools used to achieve the goal of building trust and loyalty.
In order to measure Social CRM ROI, first step is to define measurable Social CRM goals, then workout an action plan for achieving these goals, execute the plan and quantify the business benefits arising out it. And this forms the basis for calculating Social CRM ROI (and remember, not Social Media ROI).
What do you think? Please do share your comments and feedback
Hi Harish
An interesting post. But reading through it gives me cause for concern on a number of fronts.
Firstly, why should ‘building trust and brand loyalty’ be the goals of Social Media, let alone Social CRM? Trust and loyalty are complex antecedents to value creation for organisations. And to value creation for customers too. But it is value creation that should be the goals of Social CRM, NOT the antecedents of trust and loyalty. Taken to its logical conslusion, organisations should continue to build trust and loyalty through Social CRM even to the point where to so so actually destroys value. What use is an article setting out how to measure Social CRM ROI if it sets up the wrong goals for a Social CRM programme in the first place?
Secondly, the article doesn’t define what ROI is or how to calculate it – see definition of ROI. What use is an article setting out how to measure Social CRM ROI if it doesn’t say what it is or how to calculate it?
And finally, the article doesn’t say anything useful about how to increase Social CRM ROI: whether by reducing the investment part, e.g. by using a step-by-step approach to investing, or by increasing the return part, e.g. by using real options to value the investment, or by reducing the associated risks, e.g. by getting customer to carry the risks at no cost to the company. What use is an article setting out how to measure Social CRM ROI if it doesn’t say how you can increase it?
Graham Hill
Customer-centric Innovator
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Hi Graham Hill:
Thanks for your comment – much appreciated:
Goal of Social CRM strategy is to build Trust and Loyalty. Before the Social Media age, Trust in marketing relationship was limited to face-to-face interactions (like friendly neighbourhood coffee shop or grocery shop). What Social Media has done is to make it possible for any one to have the same sort of one-to-one relationship irrespective of geography. This kind of one-to-one relationships based on mutual “trust” are not possible through “traditional” CRM channels like phone, mail or emails.
While “traditional” CRM helped manage Customer Relationships on a massive scale, it did not help in building mutual trust between buyers and sellers as it is impossible to build “trust” with thousands of customers over phone or mail. For building Trust, you need to know your partner well and not just be limited to mere “transactions” as was the case with “traditional” CRM. Social Media provides the opportunity for marketers to become “personal”, interact with thousands of customers spread across geography on one-to-one basis so that marketer and the customer get to know each other so well as to trust each other – the essence of a true relationship.
Second most important goal of Social CRM is to build Customer Loyalty and to build advocacy as a result of loyalty.
Hope this helps. Regarding ROI, in this post I have provided a high level overview as to how to go about measuring ROI. Will elaborate further on Social CRM ROI in my forthcoming posts.
Thanks again for your comment,
Harish Kotadia, Ph.D.
http://hkotadia.com/
Harish: ROI doesn’t consider time and risk, so it’s impossible to make a well-considered decision about any capital investment without more rigorous analysis. Unfortunately, this limitation hasn’t prevented ROI from being misused as a generic term for any financial calculus. In addition, analyses of the value of social CRM must be taken in context. In any marketing, sales, or corporate communication effort, social media and social CRM are (or should be) part of a project that uses other procedures, process, and technologies, and they can impact virtually every part of an organization’s operations. So uncovering the ROI of social CRM, if it’s even possible, is similar to trying to uncover the ROI of ‘electricity’ or ‘software.’ So while it’s possible to use ROI as a quick, back-of-the-napkin equation for anything, it’s important to recognize the decision-making blinders it imposes. Just ask any former executive at Blockbuster Video.
Overall, I think jumping directly to the question of ROI, Net Present Value, or Internal Rate of Return–whichever you choose to use, might be premature. Sometimes, there are compelling operational benefits that are not readily quantifiable in dollar terms. Those must be understood, followed by asking “what value does this initiative bring to our enterprise?” “When?” and “With what certainty?”