The BBC TV “dragon”, Hilary Devey, got rather cross with one of the contestants in last night’s show. It seemed that the hapless entrepreneur couple had failed to grasp that the reason for running a business was to generate profit. The couple had spent the past three years only producing losses from their venture which combined office space with a nursery for workers’ children. Yet it took Hilary and her fellow dragon Duncan Bannatyne to point out that the couple would have made profits by simply renting out office space.

It is so often the case that entrepreneurs get so excited by their idea and their passion for their invention that the basics of business seem to depart them. But it is not just small business start-ups like those on Dragon’s Den which make this schoolboy error. Big business also falls into the trap of being so enthused about something that they lose sight of the profit motive.

Take, for instance, those High Street retailers who have an online store. Their web-based shops often only get a conversion rate of 2%, whilst their bricks and mortar stores rely on 20% conversion rates to survive. When you ask a retailer what would they do if a High Street shop only had a conversion rate of 2% they say, quick as a flash, we’d shut it down. Why then are they happy with such low conversion rates online? Because they are, in effect, attracted by the bright lights of the web. It’s exciting, it’s different, there is loads you can do. All that you can do with a bricks and mortar store is staff training, product display variation and investigate footfall figures. How dull in comparison to the wonderful things you can do online, it seems.

New research funded by Adobe shows that only 12% of companies have any idea whether social media activity generates a return. Yet, over 90% of the companies in the survey were on sites like Twitter, Facebook and LinkedIn. Significant numbers of businesses are using social media, yet only one in every eight firms knows if that activity is profitable.

Worse still, 20% of the companies in the study have no way of measuring the impact of their social media activity. To them it is all hope.

Many businesses, it seems, think they are measuring the impact of their social media activity. But in fact, according to the study, they are only measuring “engagement”, such as the number of re-tweets, the growth in followers and so on. But engagement is only valuable to a business if that also generates profit.

Once again we see many businesses measuring what can be measured rather than what should be measured. Social media is only of any benefit to businesses if it ultimately leads to the generation of profit. Otherwise it is just exciting, interesting stuff we can be passionate about – but that’s all.

Businesses therefore need to set up better ways of analysing social media to determine its value in profitability. For instance, rather than generating a short link on Twitter to something interesting on your website you need a specific landing page which is ONLY reachable via a Twitter link. You can then set up an analytics pathway to show the click from Twitter right through to the shopping cart payment. If you rely on telephone orders then you need specific phone numbers for offers reached via Twitter which is a different number to the one obtained via Facebook, for example. That way you can use call tracking to determine the profitability of each social network for your business.

Getting caught up in the excitement of social media is all very well – and I am sure it does your ego good to see your business mentioned so many times and have so many followers. But boosting your ego is one thing; social media is only of value to businesses if it boosts bank balances. And all the evidence to date is that few business know if that is the case.

Time to start measuring….!

Related articles

• 6 Social Media Measurement Questions You’ve Been Asking (hubspot.com)
• Measuring social media (newmediaandmarketing.com)