Jul
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Social media ROI – reality or fantasy?
July 12, 2010 | 3 Comments
Measuring social media (SM ) and measuring social media return on investment (ROI) are hot topics at the moment. I have seen various calculations and suggestions in this respect. There are quite a few views on whether you need to, how to and what it means to measure SM and SM ROI.
I am the first person to champion measuring marketing effectiveness and implementing your marketing strategy in a way that you can measure your marketing activities and their influence. I am also aware that some activities have a long term effect and are only measurable in intangible terms for example goodwill or are a supportive role and do not directly influence profit.
Often I have seen business people say “what is the ROI for social media?” To me this shows a total lack of understanding of social media as well as the potential complexities of ROI.
I will explain why I believe this.
Firstly I will go into ROI and get a little technical, which is needed for me to make my point. The standard formula for ROI is: “Gain from Investment (Income)” less “Cost of Investment (Expenditure)” divided by the “Cost of Investment” and is expressed as a percentage. Some people express ROI in a monetary term by just subtracting “Cost of Investment” from “Gain from Investment” and to me is closer to gross profit, however, at the end of the day they both show how much money you made from your investment and that is what is important.
Now it may seem simple to calculate ROI, but this is not always the case and the results are often different for every organisation. The reason for this is that what is taken into account as income and costs differ for each organisation. For example your efforts may not only produce immediate income but future income e.g. subscription or financial products, how this is taken into account can differ. Whether it expressed in today’s terms (net present value) or not. What about future costs or indirect costs like the cost of processing a sale. So we can see that dependent on the complexity of your product and organisation ROI may not be a straight forward question to answer for any type of medium or tool.
Now I come to social media. There is no single use for social media. It is being used for many different things in business from sales, branding, PR, research, CRM, networking, database building, direct marketing and more. In business how you measure sales would be totally different to how you measure research or CRM. So depending on what you want to achieve with social media your objectives will be different and the measurements you use will be different. Some efforts will not have a direct impact on sales and produce a ROI but rather may be a supportive role that perhaps influences customer retention. You can read about how some businesses are using social media in the series I wrote looking at various SM tools use in business.
So when someone asks “What is the ROI of social media?” The answer really is: it depends.…..
My suggestion on measuring SM and SM ROI is the following:
1. Define your goals (broad and general) and objectives (precise and measurable).
2. Choose relevant social mediums to achieve these goals and objectives.
3. Decide on what measurements are important to you and how they are to be measured in a way that satisfies your organisation.
4. If ROI is one of these important measurements you need to decide on what you will take into account for income and expenses.
5. You need to monitor these and compare it to other mediums/tools you would use to achieve these same objectives.
6. Adjust your objectives if need be.
As far as I know there are no industry standards or benchmarks for SM, however, there are for other mediums/tools and I would use their benchmarks as a guideline. No business person will use a tool to achieve an objective that performs worse than another option. And for that, I mean comparing apples with apples. Remember some new efforts take time to reap rewards and can not be compared to an existing method that is reaping rewards, in the long run the new method may out perform existing methods. Be sensible about how you implement a new tool, just as you would with any other.
I would love to hear from others what their views are.
PS: If any of the steps above are a challenge, which they can be and are not a simple as they sound; there are many experts who can help you work through this process.
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Eric that is great advice on KPI’s.
Stan it is nice to hear that other agree with me about ROI and the odd thing is I see that question so often.
Great post, Lee! Well, I am not a marketing expert but founder of a technology company. Nevertheless, I wouldn’t expect to see any precise ROI estimate if we decided to use social media for marketing. I intuitively feel it wouldn’t make sense to ask this question as there are too many factors that come into play. You describe them well and it really depends…
Stan
Lee-Ann;
Thanks for another great post. Two thoughts:
1) I believe your assessment of the complexities of calculating ROI is correct. Despite all we have written about calculating ROI (see our previous blogs and thanks again for the blog-roll link!), the reality turns out to be precisely as you said,“Any answer to the question of what’s your ROI is going to be — That Depends.“
2) For this reason I do as you suggest and use a set of metrics which are, for Gossamar, our Key Performance Indicators, or KPIs: numbers of visits as reported by Google for a specific day, matched to the number of visits reported by our Demand Generator solution (Pardot PI), which also gives me Active Vistors (viewed more than 1 page), Prospects (all visitors who registered on site by supplying name, email and job title), and finally what PI calls Assigned Visitors, who are the ones who have achieved, by exploring our site for enough time, a “sales ready” score and are now ready to be contacted by a sales rep (PI feeds the lead into Salesforce.com, assigns it to the right rep (by product, location or person or any other criteria you decide), and notifies the rep by email).
If you keep a SMM log as a spreadsheet, record all the KPIs each day (try to aim for capturing the data at the same time of day), and then also track, for each day, the time you spend doing your SMM, you can track more or less anything you wish.