Social Media ROI Will Become Important

Priit Kallas

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Filed under: Business, Social Media, Trends

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

As we predicted 2010 is the year when a lot of money will be invested in social media. When serious money starts to pour in then the guys upstairs want to see some results. Until now people have experimented with low budgets and without very specific goals. The bigger budgets will bring an need to show return.

Return on investment is very simple. You put something in – the investment, you get something out – the return, and later should be higher that the former.

ROI = (return – investment) / investment.

Now the question is what is social media ROI. The trick in the investment side is not to leave anything out. If you spend half of your time managing communities on social networking sites then half of your salary should be considered as an investment in your social media efforts. We estimate that close to two thirds of social media budgets may be used in-house. Social media expenditures can be any of the following:

• advertising
• content creation
• IT
• public relations
• discounts
• call center
• payroll
• R&D
• etc

If we do stuff in the right way we are going to see some results. These results are not yet ROI. You should call something a return if you can attach a dollar sign to it. Some of the results you might see are:

• web site visitors
• followers
• newsletter sign-ups
• RSS readers
• retweets
• blog comments
• WOM
• mentions in press
• RFPs
• share of voice

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.

Some of these result are relevant to your business. Select the results that apply and set concrete goals what you want to achieve. Make sure that you note the existing levels of that metric so you can attribute the change to your activities. For instance if you have 10,000 monthly visitors to the company web site, then mark it down as a starting point.

Now you have to find out how to tie these results to actual monetary business value. How much money comes in because of your activities. For example you may have 1,000 Facebook fans and get 100 visitors per month from your Facebook fan page. 25 of those visitors make a purchase that gives you 500 dollars of profit. Now you know that if the quality of fans is constant each additional fan will generate 50 cents of profit per month. You could use up to 49 cents per month acquiring more fans through advertising or other activities and still have a positive ROI. 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.

As soon as you can show positive ROI bosses will get really happy, invite you to dinner, pat on your back and give you a rise (don’t forget to include some of that rise in the investment part of the ROI formula). Budgets will grow even further.

Posted on: January 10, 2010