Your efforts to use and invest in social media as a customer service, sales, and marketing channel creates value in the sense that you increase your level of engagement with your online community, provide additional support to your customers, and even build relationships with key influencers that generate loyalty. But when does value turn into demonstrable ROI? Let's not confuse things by stating that ROI is a form of value but not all value takes the form of ROI.

To answer that question and clear up the confusion, let's remember that ROI is defined as a financial metric – a calculation method that measures the profitability as a percentage of dollars returned for a given investment/cost. The investment may be new revenue sourced, cost savings or spending avoided. The bottom line - ROI is based in transactions and lives on the income statement.

Value, on the other hand, is created when we create more awareness of our product, service or brand. This can take the form of word-of-mouth referrals, product reviews, blogging and social networking posts, etc. Ultimately, these interactions occur over time and result in purchases but it is process oriented and therefore lives on the balance sheet.

Because social media is a new channel with new methods to add value, we are having difficulty understanding how to distinguish the ROI out of the value they create. Many of the well-intentioned but misguided attempts to rename or reinvent what ROI means in social media – "return on influence" and "return on engagement" are probably the most widely used – seem to be the result of an inability to distinguish between value creation and ROI. We know social networks have the ability to create value through customer engagement and community building. However, ROI can only be measured by their ultimate impact on downstream metrics like sales, employee retention and customer loyalty/repeat purchase.

So your investment in social media remains an investment as it creates additional value to your brand if done effectively = intangible results.

But when those activities can be linked to a business transaction, it becomes part of an ROI calculation = tangible results.

If you're trying to make the case for social media, make sure you make the distinction between the two. Use key performance indicators to demonstrate measurable effects for your ROI, but also make sure you articulate the value your programs are creating and how this value aligns with, and contributes toward achieving one or more desired business outcomes - and ultimately more ROI. Monitor these KPI's to track and continually assess your effectiveness in using such metrics such as reach, engagement and influence.

And there you have it...