Wondrous post over at one of the planet’s smartest blogs – Occam’s Razor – by Google’s Avinash Kaushik on how to, and how not to measure social media ROI (incremental profit minus costs incurred).

Worth reading – but in a nutshell, Avinash takes Facebook to task for misrepresenting ROI on a Burberry campaign.

Brand promotes new product on Facebook. Sales go up.  Therefore Facebook marketing works. Not.

The error happens in confusing correlation with causation.  Take this example.  Man takes contraceptive pill.  Man does not get pregnant. Therefore pill is effective in preventing male pregnancies. Nope.

Any number of uncontrolled variables could have accounted for Burberry’s rise in sales – a sales push, increased distribution and availability, an above-the-line campaign. Just because sales happened to go up around the time you were doing social media marketing does not mean your social media marketing is effective. It’s true that your risk of error can be lowered with social commerce because a digital trail exists linking social media to sales, but complex attribution models notwithstanding, you’ll always be at the mercy of intervening variables.

The simple solution is, of course – and as Avinash points out – to control for other variables when you are active in social media by setting up a control region or market where the rest of your sales and marketing mix remains identical, except for social media efforts.  Contrast the sales from the campaign and control areas to identify the ROI of social media.

The post ends with a pertinent recommendation and an incisive insight – both of which we throughly endorse:

  1. Don’t have a social strategy: create products and services that compel social activity. Ultimately social is not just about how social your company is. It is about how many social ripples your products/services create.
  2. Social media success does not guarantee business success. Dippin’ Dots crossed five million Facebook Fans a couple of days before they filed for bankruptcy. Pepsi outperforms Coke on social media activity, but continues to lose share.