Saturday, November 13, 2010

Defining Social Media Benefits Pt 1

Let’s say you’ve been tasked with building a business case for a new social media project.  How does one go about building a business case for a social media solution?  Pretty much the same way you build a business case for anything else: begin by describing the benefits.

A benefit is some quantifiable statement of economic value (i.e., more to the point: a benefit describes how much money it’s worth to do something).  Simply put, all benefits boil down to one of two categories: they are either a) cost savings or b) revenue increases.  I’ve also mentioned intangible benefits in an earlier blog post, so you know how I feel about them: forget intangible benefits. In my experience building business cases I’ve discovered two things about them. The first is that no business case will ever be approved because of an overwhelming abundance of intangible benefits: there are just too many other projects with tangible benefits that will get approved first.  The second thing I’ve learned is that, with just a little thought and effort, intangible benefits can be converted to tangible benefits that can indeed be quantified.  For instance, “increased customer satisfaction” might seem at first glance to be an intangible benefit, but in fact it can translate into multiple measurable benefits such as “reduced cost of replacing lost customers,” “increased average purchase amount,” and “reduced marketing costs” among others.  All of these can be calculated and, more importantly, all of them can be measured and tracked before and after implementation. 

When building a business case, keep in mind that not all benefits are created equal.  Reduced cost benefits are generally more credible (and therefore valuable to your business case) than increased revenue benefits.  If you can show how a solution might save $20,000 you are more likely to be believed than if you try to convince someone that they’ll do $20,000 more business.  Even among cost benefits, those that reduce costs directly are more credible than those that reduce costs indirectly. Let’s say you have a benefit that reduces spending on an item from its current level by 10%: that’s a direct cost.  Another benefit may make it easier for an employee to perform a task, thus increasing their productivity: that’s an indirect cost reduction.  It’s “indirect” in the sense that it may or may not translate to a drop in costs on the bottom line (reducing the amount of time an employee spends on a task may simply allow them to spend more time on other tasks, and not translate into a reduction of dollars spent on the bottom line). 

So the best types of benefits to build a business case are (in order): Direct Cost Reductions, Indirect Cost Reductions and then Revenue Increases. Now that we know what types of benefits to look for, we’ll start examining some of the more common social media benefits to consider.  Stay tuned for part two of this discussion next week.

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