I’M OFTEN SURPRISED at how readily (and sometimes defensively) some social media marketing “gurus” explain away the concept of Return On Investment (ROI)—or, try to avoid the conversation altogether. They argue that terms like “Return On Influence”, “Return On Engagement”, or “Return On Conversations” can be adequate substitutes today for ROI. It’s just nonsense.

On the other hand, I’ve met with well-intentioned, but misinformed business owners who made up their minds (long before our meeting) that social media marketing is just smoosh…  The touchy-feely stuff that can’t be proven to put “butts in seats”. They unthinkingly wield this acronym like a sword, dismissing the value of social media marketing out of hand.

Bottom line? Every business owner MUST reverence the term “ROI”. There’s no substitute for it. It’s the foundation for staying in business—period. However, respecting the term also means using it in proper context.

The formula for calculating ROI is:

While the formula is simple, ROI is best understood by thinking about two sets of integrated metrics. I call them “Goal Metrics” and “Value Metrics”. Here’s how they work…

The mathematical equation above is a “goal metric” that can make the difference between staying in business or not. Every business—large or small—intuitively understands the definition of ROI. But goal metrics don’t tell the whole story. They MUST be supported by indicators called “value metrics”.

Here’s an example…  Nordstrom understands ROI. Allowing the return (with a smile) of a half-worn-out $300 sweater IS NOT a good goal metrics/ROI decision. However, it’s a great value metrics decision. Why? Because these decisions shape the indicators that support ROI by creating trust, goodwill, lifelong evangelists, recommendations, stories that spread, and long-term customers.

Can the effectiveness (and hence, the ROI) of social media marketing be measured? ABSOLUTELY!—using the right framework and timeline.

Effective social media marketing plans have four components—Objectives, Goals, Strategies, and Tactics. Each component has specific purposes, a place in your timeline, and a different way to measure its effectiveness. Over time, this four-part plan yields relevant data as patterns emerge to help businesses modify and refine their strategies and tactics for maximum social media marketing effectiveness.

In Part 2 we’ll discuss the graph above and each of the four social media marketing plan components.