The ROI of the Tweet

Money
Image by TW Collins via Flickr

Is Twitter a sales tool? Can it “drive” sales? If so, what’s the return on investment of a tweet? Most executive teams today still view the world through the lens of the assembly-line. They like metrics and clearly defined goals and well-thought decision trees. They prefer straight lines over curves with cloudy distances. They are largely justified in their lines of reasoning.

But the Web has opened up a decidedly non-linear fabric of novel media. Consequently, many organizations have been slow to adopt emerging media and technologies because they simply don’t see the return on investment. Often, they’re not even sure what the investment is. Or what the return might be. Or what the goals or purposes or opportunities of subsuming the Web into their going concerns could be for them.

So this post aims to provide a clearer, if alternate, view of what’s at stake. We’ll look at metrics. We’ll also examine how organizations can better understand the nature and essences of media – all media, old and new and media not even around yet.

If you work in an organization which has been struggling with keeping up-to-date, I offer this to you so you can go into C-Suite and answer the tough questions without looking like an unprepared stooge. You owe it to yourself to understand the media you sell to your executive team – and you owe it to yourself to ensure they understand how to properly enframe media in the 21st Century.

NOTE: This is a long post. My aim here is not to prove that Twitter is not valuable to business. Quite the contrary: I don’t believe enframing Twitter as a generator of financial ROI is the proper way to view the service. But I do believe that evangelists must be able to say to executive management something like this: We have crunched pro forma numbers and in our opinion Twitter is not really a direct (or even indirect) driver of ROI; we do believe, however, that Twitter can be a linchpin within a web of comprehensive web strategies. You can get this post as a document here.

BRUTE FORCE APPROACH TO TWITTER

In order to provide some insight into the difference between Twitter-as-sales-tool and Twitter-as-public-utility, I believe pro forma metrics may help to reveal some important properties of a medium like Twitter. Too often claims are made about Twitter’s business values – and usually the issue of metrics is explained away with vague optimism.

But why not take a crack at metrics, if only to reveal a basic truth of Twitter? After all, Twitter’s simplicity makes it a utility with varied uses. By seeing that Twitter’s effectiveness in driving revenues (even indirectly), allows conversations to focus on a more robust enframming of the service.

I’ll call the strict Financial ROI enframing of Twitter the brute force method. The brute force method makes several assumptions and follows an algorithmic, assembly-line logic. So here are the assumptions:

  • Number of followers are true fans – not just the count of followers according to Twitter – not bots,  or miscellaneous people who aren’t invested in a brand.
  • Followers are people who are likely to buy a product and who are actively paying attention to the Twitter stream of the business/product account.
  • The tweets include links to actionable web real-estate where conversion is possible.
  • Customers make at most one purchase per month.
  • Clickthrough and conversion rates are comparable with traditional web metrics.
  • The effect of retweets is actually minimal on tweets about products (at least in this case) and has been left out of the model.

So let’s look at a hypothetical. Let’s tackle a difficult industry: Pharmaceuticals. For this example, we will leave FDA regulations and other constraints on the industry out of the equation. We’ll say that the company runs a Twitter account for a particular drug and tweets links about an OTC medication (again, we’re assuming these are “FDA-compliant” tweets – yes: laugh – conversations around Twitter can be that ridiculous).

We’re going to assume that the labor time for running the Twitter account is based on $50 per hour. Furthermore, we’ll assume that only one hour a day of labor time is needed (for Twitter accounts with a very high volume of tweets, management will probably need many more hours of labor time in practice). But we’ll be conservative.

Here are a few scenarios (pulled the pro forma spreadsheet which you can view here):

1,000 Followers x 5% Clickthrough x 5% Conversion x $5 Margin x 12 Months – $12,500 Labor = ($12,350)

128,000 Followers x 5% x 5% x $5 Margin x 12 Months – $12,500 Labor = $6,700

1,024,000 Followers x 5% x5 % x $5 Margin x 12 Months – $12,500 Labor = $141,100

8,192,000 Followers X 5% x 5% x $5 Margin x 12 Months – $12,500 Labor = $1,216,300

In order to achieve over a million dollars in revenues, tweets would need to yield a ROI of 9,630%! Use your common sense: it’s utterly delusional to think that ten tweets per day over a year would provide that kind of return. Even to achieve over $1 Million, this pharmaceutical company would have to have over 8 Million followers! And each of those followers would have to be devoted true fans. Think of the investment required to generate a tribe of 8 Million followers – the time, the electrifying tweeting style, the power to be loved.

You can tweak any of the variables and crunch new figures. You can input a higher margin, for instance – but you may need to re-think clickthrough and conversion rates and follower counts. Go work up a brute force model for you business or client and see what you get. Just be realistic and understand the properties of Twitter (or whatever other medium you’re working with). That’s one of the problems I think (some) marketers have: they don’t really understand the media out of which they’re seeking to extract value.

I won’t say that you can’t generate these kinds of numbers – but there are weaknesses and paradoxes in this approach which I’ll reveal in a moment. And yes, I’m fully aware of the general effect of positive WOM but that’s not the point of this story. I’ll touch on brand awareness in a bit – wait for it. 🙂

As you can see, given these assumptions, this brute-force approach to Twitter doesn’t release a lot of financial return (not for larger enterprises with capitalizations greater than $1 Billion). Sure if you run a relatively small enterprise and can cultivate a massive and committed fan-base in the long-run, there’s a chance Twitter may provide substantial gains in line with your revenue stream. Of course, your margins may be larger (but as margins grow, you may encounter diminishing actual conversions). Most importantly: building a tribe of true fans is hard work – very very hard work.

Yes, Dell has claimed it earned $3 Million from Twitter, but Twitter was simply an ancillary service to their wider web presence – and Dell indeed has over a million followers (and a larger margin than in my pro forma).

None of this means, of course, that Twitter has no business value. In fact, I would argue that Twitter can be an essential linchpin for overall web presences: Twitter enables a pliant means to connect various media and web real estate together. It’s also real-time which means you can literally stream your presence and respond swiftly to shifting currents.

But there are paradoxes hidden within the brute-force approach. Let’s take a look at them.

THE PARADOXES OF BRUTE FORCING TWITTER’S WINGS

There’s a sort of Uncertainty Principle underlying Twitter: the more directly you mechanize a given strategy, the more dilute the attention of followers becomes.

For any Twitter strategy to “work”, the tweeting must be remarkable, attention-enlivening, creative. Tweets need to be interesting day-to-day, week-to-week, year-to-year. Annoyance and boredom are easily un-followed. Value and connection and humor are followed more sustainably. Thus, the only way a business can hope to achieve long-term attention via Twitter is to relentlessly be creative and captivating and social and valuable. Tweeting coupons and links to products alone doesn’t work all by itself.

There’s another paradox on Twitter: Promotion of Other is a greater promotional tool than promotion of Self. This is one of the hardest concepts most organizations have to understand.

Retweet your competition.

If you can’t retweet your competition, you probably don’t have the confidence and faith in your enterprise to stand out. If you’re not standing out, just what are you doing with your marketing dollars?

Marketing not only has to be effective but it also has to be respectable. For an industry like Pharmaceuticals, anything less than respectable is unprofessional.

RELATIONAL APPROACH TO TWITTER

I hope I’ve made it pretty clear that achieving a robust Financial ROI of Twitter directly is not a realistic proposition in most cases. If that’s your only enframing, I would suggest you forget Twitter.

I would suggest, however, that Twitter’s pliancy and immediacy and connectivity provide means to many other ends. It’s basically just a telephone for our century. The most valuable enframing of Twitter is in a Relational context.

Building and sustaining relationships are bricks and mortar for all successful businesses. Smart businesses understand the paradox of the un-sales approach to relationships: the more sincere and mature the relationships, the better the conditions for business development.

Sure, we can talk about buzz-concepts like brand awareness. (Of course, you could also stick a finger down your throat and achieve a similar effect.) But I actually think that’s a sub-set of the brute-force approach to Twitter. Once you make that your purpose on Twitter, you lose your followers’ attention. Brand awareness, at best, must be a pleasant side-effect of much more remarkable ways to employ Twitter.

Yes, it’s a cliche but social media is social. If you have poor social skills, you better develop them now. Since relationships operate in non-linear geometries, you’re going to have to learn to think beyond rigid lines. The Web can be an unforgiving creature and will eventually break you if you don’t have the pliancy to turn on a dime.

THE OPPORTUNITY COST OF STRICT FINANCIAL ROI ENFRAMMING

By hoping to achieve financial gain via an inhuman algorithmic enframing of Twitter, you forgo several important and valuable business opportunities. If I were a Public Relations guy, I’d look at Twitter and say: Wow! We finally have a way to re-humanize our communications and how we connect – We can finally go back and re-work those arcane methods we developed when we had only broadcasting media.

The fundamental truth of the Web is that organizations composed of cogs – people with little incentive to shine their talents – simply don’t have the supple musculature demanded of a public sphere laden with real-time technologies.

Organizations must cultivate cultures of creative, ambitious, informed and swift-thinking human beings. If you’re going to invest in Twitter, you better have remarkable people working for you – do it yourself if you have to.

A narrow focus on Financial ROI will enframe a human context within a technological one. In other words, it’s putting the right shoe in the wrong box.

The opportunity cost of enframming the business value of Twitter within fincancial ROI is the larger frame of possibilities which Twitter offers. The most important of these are the re-humanization of corporate communications and the connecting of disparate elements of an active online and offline presence.

THE ROI OF THE TWEET IS…

The ROI of the tweet is elusive.

The ROI of the tweet is what you make it.

The ROI of the tweet is the expression of your daily artistic creativity.

The ROI of the tweet can be mechanized – but at enormous expense and opportunity cost and risk.

The ROI of the tweet is relational.

The ROI of the tweet is conditional.

The ROI of the tweet is contextual.

The ROI of the tweet is human.

How you enframe tools influences what you get out of them. Sales people enframe sales uses around media. Marketing people enframe marketing uses around media. Public relations people enframe public relations uses around media.

The fact, however, is that the Web is Mother of All Media. It not only spawns new media with differing properties, the media it spawns all inter-relate among each other in novel ways. We don’t have a Grand Unified Theory of the Web, but we can at least understand the fundamental properties of individual media. When I get asked how to “use such and such a tool”, what people are asking is: What’s the theory here. But there isn’t any tested theory: at best we have intuition and reason and experience and imagination. Of course, if your lack these then a theory probably won’t help you.

My recommendation to anyone interested in new media’s role in business is to go back to fundamentals. Language like “old media is being replace by new media” can lead you down misguided paths. Marketing is more than messaging, of course, but it’s important for marketers and communicators and public relators to understand Media. Here are some questions to ask yourself and your team about media:

  • What is this medium? What’s is its essence?
  • What are the properties of this particular medium?
  • What are the possibilities of this medium?
  • What category(ies) does this medium fill: social, impersonal, synchronous, asynchronous, unilateral, bilateral?
  • What does this medium enhance?
  • What does this medium obsolesce?
  • What does this medium retrieve?
  • What does this medium reverse? What happens when this medium is pushed to its limits?
  • What happens when a person encounters this medium?
  • How does this medium relate to other media?
  • How might this medium change the world?
  • How should this medium be enframed?

These are simple but difficult questions (I will expand on them in future posts). When was the last time you asked any of these questions? What have you done to acquire an orientation about new media? That’s the purpose of the above questions: to get you to pan back from your accustomed views and assumptions and experiences and re-frame things in clearer contexts.

It’s also important to understand the different kinds of connections between media and people and things. Social isn’t the only connection. People have connections with products and services – but those connections aren’t social. For example, the connection between a customer and a brand isn’t social. It’s something else – knowing what kind of connection binds medium to medium or people to products helps you determine what media you choose.

For instance, by understanding what a medium enhances, obsolesces, retrieves and reverses, you can better compare novel media with familiar media. You can develop insights into what features of traditional approaches can and can’t be ported into new media. If you’re unfamiliar with McLuhan’s Tetrads, you can learn more here.

If you work in an agency – PR or Marketing – you need to answer these questions so that you can equip yourself with the resources to properly view emerging media. It’s no longer enough to “get” Twitter or Facebook or Blogging: you must have a fresh philosophy about media in general because the Web is evolving. You need to hone an intuition about emerging media and these questions offer a good practice for you.

THE LESSON OF THE TWEET

The lesson here is that there is return on the tweet. But before you get to return you must get to re-frame. This is going to be a turbulent century. It’s easy to get tossed about and disoriented. Assumptions and methods which were once effective may no longer give lift. Orienting is itself a skill to be treasured.

Focusing on one narrow objective like financial ROI before fully understanding an asset is not all too wise. Not when your competition has figured out things you haven’t even considered.

I have tried to address the legitimate concerns of “old-school” executives who rightly question the expected returns of social media. I believe they are entitled to an honest accounting about the limits of media. The smart ones will see the folly of attempts to port assembly-line thinking into territories in which it makes no sense to do. The smart ones will also then be able to see things aright and perhaps your organization or client will understand the proper context and enframming needed to be remarkable.

You can go the brute-force method and miss a much larger party. Or you can be something far more interesting and ultimately financially rewarding. My advice on Twitter is to be a Lovable Peacock: someone with the goods worth showing off but with a warm heart for the flock. Many executives won’t like that metaphor. But then, not many businesses here today will be around in 2020.

So, what’s your take? Is my brute-force analysis flawed? Does it help to demonstrate and to admit up-front that Financial ROI isn’t a wise enframing of Twitter? Does it advance the conversation?

Will you re-enframe everything you think you know? Will your Corporate Philosophy take to wing…or fold?

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10 Comments

  1. I love the way you frame the proper context for using Twitter – and particularly the note about tweeting your competition – but I’d suggest your ROI model is appropriate only for certain scenarios. I’d recommend looking at lifetime customer value rather than margin as a more meaningful indicator of value. This is why consumer packaged goods companies use coupons and samples so much. They know that if they can get a consumer to switch to Tide, then she will probably use Tide for a very long time (there’s an intangible word-of-mouth benefit as well, but that’s hard to calculate).

    A business-to-business company knows that a single sale can lead to a long-term relationship that yields high value over a period of years. In that case, the margin of the initial sale is a poor indicator of value. The real value is in the relationship.

    Twitter is one of many ways to prospect, and it may not be a good one in all situations, but these days we need to reach people by whatever means they choose. Even with a weak ROI justification, the risk of not using Twitter may outweigh its financial benefit.

    I took my own shot at an ROI calculation recently, focusing on lifetime value rather than margin. I’d be curious for your opinion, if you have the time. Thanks for an enlightening post.

  2. […] Furthermore, the media through which information conveys its meaning determines its interpretation. Therefore, any discussion concerning the proper delivery of product information must base itself upon the most complete understanding of media possible. Few media are alike in properties, possibilities, limits and pliancy of re-purposing. Not all media can be used for the same purposes as other media. Twitter may help Dunkin Donuts move sales, but that doesn’t mean it would for Pharma. […]

  3. Phil,

    You are on target. With Salesforce.com and others making Twitter part of their widely used CRM offerings, social CRM has arrived.

    The challenge for healthcare, especially with providers, is to create a basic framework of shared principles and concepts for CRM, social or otherwise.

    Just as every conventional sales lead (or a “contact” in Salesforce parlance) doesn’t turn into a qualified lead or opportunity, every tweet won’t turn into a new referral or transaction. However, by collecting the relationship data in a useful framework, we can learn more about what drives a successful relationship outcome.

    Your unique perspective as a accountant with a nursing and startup perspective is appreciated. Keep those great observations coming.

    Tom

  4. Thank, Brad.

    I do think to some extent social media are revealing internal weaknesses within enterprises. We always knew they were there – but these media perhaps act as mirrors.

    Also, we’re more open now about sharing ideas on how to improve not only marketing processes but also internal ones.

  5. Brilliant.

    Well assembled. I’ll admit that my biggest take-away is actually from the middle of this article, “If you can’t retweet your competition, you probably don’t have the confidence and faith in your enterprise to stand out. If you’re not standing out, just what are you doing with your marketing dollars?”

    I think this asks another question as well, one that I’m seeing more and more companies ask. Is our Social Media experience pointing out basic processes that are broken already… Are we having fails in Social Media because OUR processes are broken, not because Social Media is failing us…

    Thanks for all this thought in one place.

    Oh, and FIRST 🙂

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