How To Measure Social Media ROI

Priit Kallas

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Filed under: Business, Social Media

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Tags: expenses, investment, profit, return, ROI, social media budgets, social media in-house, social media results, Social Media ROI

The number one thing about ROI is that it is measured in dollars (or in euros or any other currency you might prefer). Wikipedia tells us that:

In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.

This means that whatever non-monetary goals we might achieve, we have to translate them into dollars. The basic business metrics you should measure are:

• Number of transactions
• Number of customers
• Number of new customers
• Revenue
• Profit

Get these numbers tracked before you do anything else. You probably already have a specialist for this job, she’s called accountant. But the thing is, that for most of us, our social media activities influence these metrics only indirectly. Some of our social marketing goals may be:

• Website visitors
• Leads
• Brand awareness
• Newsletter sign-ups
• Facebook fans
• Blog comments
• Social mentions
• Visitor satisfaction index

Social Media ROI: Managing and Measuring Social Media Efforts in Your Organization
Use this book to bring true business discipline to your social media program and align with your organization’s goals. Top branding and marketing expert Olivier Blanchard brings together new best practices for strategy, planning, execution, measurement, analysis, and optimization. You will learn how to define the financial and nonfinancial business impacts you are aiming for–and achieve them. Practical solutions from structuring programs to attracting followers, defining metrics to managing crises. This book will help you gain more value from every dime you invest in social media.

Now, the trick is to find the connections between social results and dollars earned. Start with the simplest of correlations. Here are just a few examples:

How is the number of your monthly website visitors related to revenue. Segment that and tie website visits to revenue from online and offline segments. Segment yet again and find the most effective online revenue drivers. What you want to know is if site traffic increases X% then revenue goes up how much?

Find out if the customers who are your Facebook fans make purchases more often. Check if the Facebook fans are making larger transactions than average. What you want to know is if your Facebook’s fan-base grows X% then what’s the corresponding increase in frequency of transactions.

Start to monitor the social chatter and tie the number of mention on the internet to changes in sales volume. Segment that and find out what channels have the most impact on the bottom line.

If your sales are mostly online then it is easier to measure all those metrics. When you are operating offline then you have to conduct customer surveys and ask specific questions to figure out why they are doing business with you. You can also implement various incentives to track people from online to offline. For example we have done this for our client by giving Facebook fans special deals that can be used offline and then measuring the results of those activities.

After you have collected these data for some time, you will be able to make pretty good predictions how different social media activities influence you cash flow. A word of caution, don’t stop experimenting. Use 5-10% of your marketing budget for experiments and you will be ahead of the pack.

And, of course, make note of your spending on customer acquisition and establish a base-line. Include all marketing spending. Make note of how much is spent on different channels online and off. Separate the parts that are hard to measure (new logo, upgrading content management system, etc.).

ROI is about the R. Return. No return, no ROI or more precisely negative ROI (ROI = (return – investment) / investment.). One million Facebook fans won’t make any difference if you don’t know how to turn them into paying customers. From our post Social Media ROI Will Become Important:

Consistency, predictability and repeatability are important when dealing with ROI. Experiment with small budgets. Weed out money losers and channel the funds to profitable activities.

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Image credit foxumon

Posted on: February 10, 2010