December 15, 2009

This Week In Business: Twitter ROI

Last week's discussion about Social Media Snake Oil was the most read blog post of the Fall Season.

Not the most read, of course, by our core audience, but most read due to the viral nature of Twitter.

In my case, I had about 200 new individuals click-through some place in Twitter and read the article. Of the 200 new individuals, about 30 chose to follow me on Twitter, with a third un-following me within a few days. And of the 200 new individuals, about five or six chose to subscribe to my blog, where all of the in-depth discussion and analysis happens.

I need about 75 new subscribers to yield one new consulting project. And each new consulting project is worth, let's assume, an average of $12,000 (some small ones, some whoppers, the average being maybe $12,000).

Therefore, we can calculate the estimated consulting revenue that will be generated by a blockbuster article that is re-tweeted around the globe:
  • Value = ($12,000 * (5 blog subs / 75 blog subs per project)) / (200 new visitors via Twitter) = $4.00 consulting revenue per new visitor from Twitter.

Hint #1: I cannot stay in business at $4.00 consulting revenue per new visitor from Twitter.

Hint #2: You have a better chance of making $/tweet if the tweet has a long "life". This doesn't happen in Twitter, with the average tweet having a 15 minute life, while articles that are re-tweeted have a life for maybe six hours.

This is where the Snake Oil aspect of Social Media appears. Retailers and business leaders understand this issue. For a tool like Twitter to be successful, you have to "scale" to a huge number of unique followers (those who don't follow you because you followed them), or you have to write blog content that is so stunningly outstanding that you get a ton of visitors at low monetary values to make it pay off, or you have to find the exact nine people who are highly likely to purchase your services at the exact moment your tweet is released into the ether.

My blog articles get re-tweeted at the levels of last week's most popular article about once every two or three months. So once every two or three months, I am able to achieve a potential windfall of $800 via Twitter. This isn't what the Social Media experts promise you the "conversation economy" will deliver.

In many ways, Social Media is a glorified Pyramid Scheme. My blog sustains my business, but I am one of just a handful of people who can do that. For everybody else, there is a fight for attention. You have to acquire a huge following, and that following must be seeded with influentials who re-tweet your content to large audiences, who then re-tweet your content to their smaller audiences, in order for the whole process to "scale" to a sustainable revenue level.

And as you can see, it takes a lot of "scale" to make that happen.

Given the Pyramid Scheme style of development required by Twitter, it is easy to see why those at the top of the Pyramid Scheme tell you that you, too, can do this, and then belittle you when you don't succeed, saying you "didn't do things the right way", suggesting that somehow it is your fault that you didn't succeed.

It isn't your fault. It is a probabilistic game that only a small number of people/brands can win.

Take Nordstrom's Twitter presence, about 20,000 followers across a customer base of maybe 8,000,000 annual buyers. Just think about that when you consider "scale" ... they have maybe 8,000,000 annual buyers and only 1 in 400 care enough to follow Nordstrom on Twitter ... heck, they have only 14 times as many followers as I have.

If an eight billion dollar brand that is known world-wide for customer service only has 14 times as many followers as I have, what chance of success is there for anybody to make a living on Twitter?

Now, when Nordstrom takes care of a customer issue via Twitter, well, that is 100% consistent with what their brand is about, right? And when you think about using Social Media in that manner, well, then you are defining ROI differently, and then Social Media becomes a great fit.

3 comments:

  1. Nail, hammer, head. Love it. I think you're right on the money about Twitter ROI from a traditional measuring standpoint. It takes huge effort and mass following to truly monetize youtr tweets. In the end, the direct ROI calculations will look miniscule at best.

    However, as a medium for increasing brand awareness, spinning off new partnerhsips and opportunities, expanding your customer service and ways to interact with "followers", the hidden ROI is much more difficult to quantify.

    Some say "snake oil" others say "intangible benefits". Whose right? Probably both camps in many ways.

    I can tell you this though. If a client of ours was looking for a consultant on ROI/measurement, your Twitter posts have made me view you as a "go to" guy in this arena. Without Twitter, I would never have heard of you... Measure that ROI. ;)

    Rob - LexiConn

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  2. Just because we can see into the future for where we should be, doesn't mean the gears of business turn that fast.

    It's hard right now for businesses to invest. Twitter and Facebook are still changing features at a rapid pace, which makes the development of enterprise communication systems around them difficult. They don't have long, stable roadmaps that developers can get behind to create the communication infrastructure that Nordstrom's and other brands need. Since an enterprise communication system doesn't exist, businesses are also missing enough experienced staff using and supporting them to have a viable talent pool. We won't even talk about the lack of business processes and governance because social media operations is virtually unheard of.

    Tweetdeck is not an enterprise social communication system. Enterprise 2.0 systems don't serve as clients for Twitter, Facebook, YouTube, and the rest.

    Without a phone system, businesses can't do telemarketing, sales calls, telephone tech support, etc. Without an email system, businesses can't do email marketing, sales emails, email tech support, etc. Same for social.

    These gaps represent the most exciting opportunities for businesses to address with innovative solutions.

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  3. Thank you for your comments Rob & Justin!

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