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ROI and Social Media

(updated 2020)

ROI Basics
Before deploying any investment strategy, an organization typically considers a range of options, and assesses the forecasted returns, before settling on one as their chosen strategy.  The strategy is monitored over time, usually monthly/quarterly/annually, to compare the actual return versus projected return, so that management, can determine if the strategy was successful, and can mitigate unforeseen negative impacts.

Return on Investment
ROI) – is the performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of investments. It is perhaps the most important performance measure that explicitly captures the impact of an organization’s marketing efforts.  It’s ability to quantify the value of marketing efforts makes it essential to an organization’s monitoring and expense control efforts; and its explicit nature permits ROI to relate the value of the organization’s activities to employees and shareholders.

Marketing Tactic
Some argue that social media requires completely different considerations from traditional marketing strategies. There are some differences; but, I would not call it a separate discipline. It’s more of a marketing and communication tactic. The Social Media Strategy should be considered as the organization discusses the marketing strategy, specifically concerning the use of blogs, micro-blogs, social networks, and email campaigns. While the aforementioned outlets can be considered as part of a marketing strategy others such as instant messaging and VOIP should be considered during the discussion of the technology strategy. And, then both have to be included in the finance or budgeting discussion.

ROI Translation
Stakeholders are trained to evaluate metrics and hard figures to identify value. ROI is where marketing and finance meet and translate strategy into tangible results for stakeholders. For many, the social media space is a fun unnecessary space.  ROI provides sceptics and prudent investors the data driven qualitative and quantitative ROI (or results) of interacting with customers, and potential customers, via social media outlets. Moreover, it gives them a basis for comparing the actual results across time, and to projected results.

Once management understands both the benefit of engaging their customers, and the flexibility of platforms to engage their stakeholder, it becomes increasingly difficult to say no to digital engagement.
Buying Into Digital Engagement

It’s More Than Likes and Followers
Social Media, for business purposes, must translate into something tangible; more than just large numbers of fans and followers:

  • Are your followers and fans engaged with your brand?
  • Are you experiencing increased brand loyalty and increased revenue, or did your fan base increase solely as a function of a one-time freebie?  
  • What percentage of new fans and followers became lifetime customers?
  • What % or $ volume increase is attributable to project/investment A vs. project/investment B?
  • In the future, which project(s)/investment(s) should we continue, alter, or discontinue altogether?

The Value of Social Media
The business case for social media should neither be underestimated. There is value in engaging a social media strategy:

  • 84% of global internet users use social media
  • 80% of Americans use a social network.
  • 90% of social media users buy from the brands they follow.
  • There are over 600,000,000 blogs.
  • 47% of buyers view 3-5 blog posts, or other pieces of content before starting the buying process
  • 50% of content marketers say they can demonstrate how it has increased sales
  • 78% of consumers trust peer recommendations.

These statics, and more, are available by googling your question; however, several comprehensive reports are also available, including the Global Web Index, and Hootsuite Social Media Trends reports.

Calculating Social Media ROI
Industry reports and statistics can give you an idea of the benefits that are possible; but, they’ll never tell you exactly how or how much your individual organization will benefit. Only 56% of businesses actively measure the impact to the bottom line; many organizations still struggle to quantify their efforts.  Without backup data to prove the value of an investment, it becomes difficult for organizations to ensure that they engage in the most value additive activity. We know the metric to use is ROI. The factors considered for calculation are subjective and numerous; but, not rocket science.

ROI is a simple ratio with a numerator and a denominator.  The numerator, your total return, in its most basic form, includes considerations such as the following:

  • Will you have a blog and track engagement, click throughs, and purchases directly attributable to these actions?
  • Is your objective to increase brand awareness, and measure the number of advertisement impressions only?

Most platforms offer some type of analytics that make is fairly easy to obtain the data you need for formulating your numerator.

The denominator, your total investment, includes considerations such as is your investment a paid advertisement, a salaried employee, or a vendor? The cost is your denominator. Complete this exercise for every social media activity.  The sum is your total ROI for social media marketing efforts; but, by measuring each activity separately, you are now able to determine which activity to keep, and which one discard.

Beyond Industry

Industry has established general standards for good click through rates, cost per click rates, etc. These standards should be used as a benchmark, and sanity check. But, these metrics don’t answer bottom-line questions:

  • How many new customers did my campaign generate?
  • How much did it cost me to generate this new business?
  • Was it worth it, or was last year’s campaign more successful?

These are the questions ROI answers.