About a week ago, I happened to see an inquiry from a business writer looking for examples of misused business terms. I didn’t even have to think about my response – this term is probably etched in the amygdala of every marketer who’s plied his or her trade in the era of social media – “ROI.”
Yes, we all know that ROI stands for “Return on Investment” but very few people use the term with its necessary qualifiers: “positive” or “negative.”
For example, in the social media realm we see these phrases used a lot:
“Social media provides ROI!”
“Social media doesn’t provide ROI!”
The thing is, social media marketing will ALWAYS provide ROI – it’s just that most companies (and most social media marketing service providers) can’t accurately tell you if the return on investment is positive or negative.
Furthermore, Logic 101 (and by that I mean actual logic courses at a university level) will tell you that in order for any any argument to offer any semblance of an accurate conclusion, you first have to precisely define the premises of the argument.
Again, almost nobody takes the time to do this effectively. In order for a business to determine whether social media marketing provides a POSITIVE return on one’s investment in it, you first have to define exactly what the investment is.
For businesses, that’s a dollars and cents variable that must include things like salaries, advertising, tools and a whole host of other factors.
The other premise that first needs to be defined in calculating ROI is the “RETURN” part of the equation. Since our investment premise was defined in terms of dollars, this is the measurement that MUST also be applied to the RETURN side of the equation. Metrics like “number of Facebook Likes”, “sentiment”, “awareness”, etc. HAVE to have a dollar figure ascribed to them in order for the ROI equation (ROI = Dollars invested – Dollars Returned) to hold water.
So, ROI, used without a positive or negative qualifier is one error in usage of the term. The other more fundamental error, is ascribing a dollar value unit of measurement to only ONE of the key variables in the equation.
I propose a new definition for ROI: The dollar value calculation, based on a strict accounting methodology ascribed to ALL variables in the equation, that determines the net result between dollars invested minus dollars returned to the unit of business under scrutiny.
Not as sexy as ROI undefined, to be sure – although I’d venture to say that CEO’s and CFO’s would favor the analytical definition over the colloquial one any day of the week. What do you think? Feel free to leave a comment below with your take.