By Christopher Carfi, entrepreneur and CEO of Cerado, Inc

What are the ROI and other metrics organizations should be putting in place to address social business activities?

We’ve seen organizations that seem to believe that they can simply sprinkle magic social faerie dust on their existing business efforts.  “We need to be doing things on Twitter!  And Facebook!  And FriendFeed! And Flickr! And YouTube!  And…”

And…hold on a second.  (And, most importantly, please do not start the conversation by putting up a slide that looks like someone simply pulled together every logo that’s appeared in the context of Web 2.0 over the past two years, and claim that as a “Social Media Strategy.”)

The thing that seems to tether the conversation to reality is the conversation around metrics.  Metrics are how we tie the “why” of social to the business.  Social efforts must support both business goals and the goals of the individuals in the community (whether those individuals are internal resources or customers and prospects themselves).

There are three reasons for this thinking:

• If the business goals around “social” are not defined, the community risks being feature-driven, and may suffer from chasing “the next big thing,” regardless of how “the next big thing” connects with the business itself.

• If the community members themselves are not involved in the success-definition process, the community members may find the communications efforts irrelevant to their goals.

• If the business goals are undefined, or if community members themselves are not involved in the creation of the community, the community’s risk of failure may grow substantially.

According to Joseph Cothrel (Cothrel, J. P., 2000, Measuring the Success of an Online Community. Strategies & Leadership, v. 20, no. 2, pp 17-21. MCB University Press), efforts of this type can be measured on three dimensions :

financial metrics

activity metrics

“other” metrics

1. Financial metrics are those metrics that can be connected directly to financial measures.  Examples of these metrics include sales, advertising performance, customer subscription renewals, cost savings in customer support, and other hard-dollar measurements.

Financial metrics, however, are not always easily calculated.

2. Activity metrics can be used to track other measurable items of interest to the organization.  Metrics such as web site visits, community size, frequency and volume of social contribution and the like can be used as a way to understand the trajectory of the social business efforts, even if they can’t be (immediately) tied back to bottom line measures.

3. Other metrics, in addition to financial and activity metrics, can be implemented as well, such as tracking the topics of communication that garner the most interest or measuring changes in sentiment over time.

Marketer’s How-To, From The 60 Second Marketer

1. Know why you’re involved in social media. Let us repeat from the article, “social efforts must support both business goals and the goals of the individuals in the community”

2. Be sure business goals for social media usage are defined. Otherwise, wave goodbye to your ROI. (Sounds like a sad country music song.)

3. Measure your financial, activity, and “other” metrics. One without the others doesn’t tell the whole picture and can be misleading.

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Christopher Carfi is an entrepreneur and CEO of Cerado, Inc. In December 2009, he was named One of the Smartest People in Social Media. His blog, The Social Customer Manifesto, is a “Top 25″ marketing blog, and has won numerous other awards including “Top CRM Blog” in 2005 and 2007.

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Monday, January 25th, 2010, 7:14 am   |   General Marketing, Social Media  |  RSS feed |  Respond  |  Trackback