The Fundamental Business Problem With Social Media


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The fundamental problem of social media within the context of traditional business metrics and reporting is that no matter how much of a media darling it is, Social Media is merely another medium in the total marketing pool and hence falls within the expense category.

Think about the last time you looked at a P&L, did you see the following financial metrics?

– Number of Likes

– Number of Followers

– Number of Friends

– Number of Re-tweets

– Number of +1’s?

Obviously not. That’s because none of these “metrics” are directly related to the financial reporting of any business.

How about Marketing, Advertising, IT and Payroll? Of course because these are standard expense lines in the P&L.

As a fan of Social Media, I am a true believer in the power of the medium. A recent article on Huffington Post rightly points out that, “Social media is powerful at two points during the sales process: the beginning (lead generation) and the end (customer retention).” Another major attraction of social media is that it is cheap. Small businesses have access to Instagram, Facebook, Twitter etc just as large corporate’s do. Sure, there are snake oil salesmen out there who will tell you have to spend a fortune to “design and implement an integrated holistic social media strategy“, but I have come to the realisation that there is a direct correlation between the crap talk and the amount billed.

Another major benefit of Social Media is that so much of it is trackable. That is, you can see what revenue your expenses are generating. Tools such as Google Analytics are excellent at providing tracking of the financial impacts of social media activities. With a little coding on a website, one can track the Facebook link through to check out. However, for any non-accountants out there, from a financial reporting mechanism, the Facebook link is not recognised as revenue but as an expense.

Tragically, as some articles point out, one of the key reasons for generating a Social Media ROI is to “justify the expense“. In my view this comes down to the fact that Social Media seems to have been discussed as a New World revenue model, rather than accepting its’ true fate as an expense.

Having read countless articles about the ROI of Social Media (here are a couple of thousand, if you are keen to completely waste your time –, I have often thought I was a laggard of the social media medium. However, I was delighted to read a report from Business Intelligence with the none too subtle page header, “The Death Of Social ROI — Companies Are Starting To Drop The Idea That They Can Track Social Media’s Dollar Value“. It seems the corporate world is catching up to the fact that measuring the benefit of social media is more than “Likes + Shares = $$$”

For businesses looking to invest in social media as part of the their marketing effort, the benefit can generate fantastic results. However these results are an outcome of an expense because, as I just mentioned, social media is an investment. Is social media the best marketing medium available? I don’t have any facts to suggest it is better than a major TV campaign, although pretending that this is a medium that sits outside a traditional P&L because it is new and special, is absolute nonsense. Social media is an expense. Spend well and the financial gain will hopefully exceed your costs. Spend poorly, then close your eyes and pretend that “Likes + Shares = $$$” (and polish your resume).

Republished with author's permission from original post.

Craig Padoa
Having been exposed to a multitude of consultancies, spreadsheet jockeys, strategic models and technologies, I subscribe to the quote by Sir Winston Churchill, "However beautiful the strategy, one should occasionally look at the results."


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