Marketers have clearly established social media as a legitimate channel in their multichannel marketing strategies. As such, social media success – and the investments required to achieve that success – must be tracked and reported in the same way that marketing does for all its other channels. In the end, that’s ROI (return on investment). The equation is simple enough: ROI = (Revenue – Cost) / Cost
Yet unlike ROI calculations for other marketing channels, marketers struggle to quantify social media ROI. But quantify social ROI they must! Why? Because social media investments are paying off in big ways, which leads companies to invest a larger amount of their marketing budget into social campaigns. Management, in turn, sees these sizeable investments and demands to have quantifiable results to justify them on an ongoing basis.
Fortunately, social media ROI is measurable. The measures may vary somewhat from those of other channels, but the bottom line is that you can get there. Once you do, you’ll be able to clarify the impact of your social campaigns to upper management. At the same time, you’ll ensure more predictable success going forward, because you’ll have objective data to inform you about the types of campaigns and tactics that are working for you over social media.
Marketers sometimes measure their social media success in terms of the volume of activity occurring around their online properties and the number of people participating in that activity. As a result, popular metrics include the number of fans, friends, followers, Retweets, site visitors, blog comments, social mentions, etc. But these metrics do not constitute ROI.
Recall the equation for ROI: ROI = (Revenue – Cost) / Cost
Based on this equation, social media ROI can only be achieved by either generating revenue or reducing costs. Does this mean you shouldn’t track the above metrics? No, you absolutely should. But just recognize that they are only the starting points in your social media ROI calculations.
Dennis Yu, CEO of Blitzlocal, refers to many of the social activities or gains from the above metrics as “assists” in the revenue generation process. An assist doesn’t necessarily represent revenue or a sales transaction, but it ushers a buyer along to an eventual purchase.
Here’s a paraphrased excerpt of how Dennis explains it:
“If you live and die by conversion rate and cost-per-click, you get a false sense of where to spend marketing dollars based on last-click attribution, wherein the last thing someone did gets all the credit. Recognize the “assist”, so if you’re doing lead generation for a $200 product, and you know that one out of 10 email recipients buys, each
email is worth $20. So ask, ‘How many fans did you get? Of them, how many enter a store and how many buy?’ Then you can put a value on each additional fan.
Whether your organization sells B2C or B2B, the concept remains the same. You need to track how your fans, followers, and other social connections transform into leads/prospects and then track when they convert into sales. You can achieve this type of tracking in a variety of ways, from special promotion codes for Twitter followers, to actual coupons from your Facebook page. Running such tracking campaigns will also inform you which social sites contribute the highest ROI.
To truly know the impact of your social efforts, you need to know the delta between where you were before you started and where you are after your social media activities. This means establishing a baseline of your key metrics before the start of a social media campaign. By developing metrics and baselines, you will force yourself to clearly define the goals and corresponding metrics of your social campaigns.
Let’s say, for example, that your primary goal is to increase the number of social media mentions of a product that your company recently improved or repositioned in the market. Set your baseline by using a social media monitoring tool to understand the volume of product mentions that are happening today. Note: It’s advisable to use an advanced monitoring tool with comprehensive coverage, so that you’re confident your baseline is accurate.
Once you establish the baseline volume of mentions, you must make sure that it corresponds to a revenue number. In this case, you would use the current revenue of the product at the latest date possible leading into your social campaign. This way, you can track mention volume in relation to revenue for the product over time.
To show social media’s impact and to make your ROI case to management, be sure to track all the activities of your social campaign, including the dates for major activities (i.e. press releases, social contests, blog posts). Then overlay this data with the revenue/sales metrics:
1. Product revenue
2. Revenue per transaction
3. Number of transactions per customer (retention rates)
4. Volume of net new customers (which can also be measured against number of new social media connections to yield a ratio for future predictions)
5. Volume of sales transactions (to show how growth in social connections increases transaction volume)
Now we’re getting specific on social media ROI. But we can get even more specific!
Your success on social media will likely be uneven across different types of social sites and through different campaign types. So once you know you’re having success, find out where it’s coming from… and where it’s not.
For example, are people from your online forum and from Facebook going to your website in equal numbers? That’s good to know. Now, imagine a much higher percentage of the people from your forum convert to a sale compared to the number of people that convert from Facebook. This information will help you to adjust how you lead Facebook users to your site – perhaps by changing expectations. Maybe you’ve over-promised, or maybe you simply have more dedicated fans in your forum. In either case, you can get to the “why” behind varying levels of success and make adjustments for even higher success rates.
This deeper dive into where success comes from also depends on the use of an advanced social media monitoring tool. An advanced monitoring tool will enable you to track sentiment by site as well as overall. Digging into site-specific sentiment and topic data will help validate your numerical findings.
Some companies have reached the point, after a period of social media monitoring, at which they know which sites offer the best revenue opportunities for them. At this stage, they can more readily develop a standardized process for measuring lead generation ROI. Here’s an example:
Assume that a company knows Twitter is the one site yielding the majority of mentions about their brand and competing brands. By continuously monitoring Twitter, marketing staff can intervene in the most appropriate discussions and suggest the value of the company’s products/services.
Once a Twitter discussion turns into a lead, marketing attaches a value to the progression of that discussion by applying the value of a lead. Thus, the ROI of monitoring Twitter and engaging consumers who progress into the sales cycle becomes a simple calculation:
ROI = (# of Leads x The Value of a Lead) / Cost of Twitter Engagement
(The “cost” element comes from the staff hours spent on Twitter engagement – the company minimizes cost with streamlined processes that leverage email alerts and
A similar scenario for calculating ROI takes place when you measure responses to your own social content. For example, assume you blog on your own site and comment/participate in others’ blogs. By simply asking new prospects where they heard about your brand, you can begin to recognize which blog posts and blog sites are working best to generate interest in your brand. The same calculation applies, with
your cost factor changing to the value you place on time spent blogging. An additional benefit to this measure is cost avoidance. If you discover the blogs that do not yield leads, you can decide to stop using them and reduce the time and effort spent blogging by focusing only on the high-impact blogs.
In these scenarios, the steps to measuring ROI are simple:
1. Monitor for buying signals
2. Engage in the conversation
3. Track prospects through to leads (and sales)
ROI was presented here in terms of revenue generation and cost reduction to align with best practices for calculating ROI. Yet, social media is special, because it provides the ability to achieve ROI in so many additional ways. Perhaps the engineering team within a company wants to monitor a wide swath of discussions across multiple topics in an effort to dream up the “next cool thing”. Or maybe the marketing team is looking to spice up its dull brand image by teaming with other brands that enjoy high levels of positive social sentiment. Whatever the goals are, it’s important to strictly define them and establish “before” and “after” metrics to measure the ROI of the social activity that supports them. Here are a few suggested measures to help you frame your own ideas:
1. Engineering: the volume of new innovative ideas presented to the VP of engineering as a result of listening in on science and technology forums
2. Marketing: the number of partnership options identified through monitoring
3. Customer Service: the volume of help tickets resolved online. Taking this a step further, the volume of “positive sentiment” mentions specifically tied to issue resolutions
4. PR: the number of industry influencers discovered and engaged through social media. Eventually track and measure the value of consumers whom these influencers lead to your company.
In all successful social media measurement exercises, you must establish a baseline to determine the value of your progress. This is where advanced social media monitoring tools really help to make your case. They enable you to find the relevant discussions wherever they may be taking place. More importantly, they can quickly calculate the baseline figures and the after-effect figures that form the basis of your ROI calculations.