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1 June  2008 ~

Social media ROI Do you understand the benefit you should be getting from Social Media?  ROI, (Return on Investment) is a common measurement that evaluates the amount of “benefit” derived from an investment.  For instance, assume your social media marketing consists of spending 5 hours/week creating new contacts via Twitter, Linkedin and Facebook. Now, let’s assume your time is worth $200/hour. Across a year, your investment is roughly $50,000!  So… is it worth your time?

Well… this is where it gets gray.  The problem is that when it comes to SM marketing, measuring the ROI is a little difficult because their returns are not direct and immediate. The big question is how do you properly measure a return from these activities?  A financial analyst might say, simply take the annualized return less the annualized cost and then divide by the annualized cost. 

For example, assume that in an average week, you connected with 10 new people and followed up with 20 existing contacts. Using these contacts as your measurement, perhaps by the end of the year, you can directly attribute $30,000 of sales to them.  Thus mathematically, for all your effort, you actually achieved a negative return of 40% ((30,000-50,000)/50,000) = -40%.  Clearly a negative return of 40% is an outright failure, right?
As Lee Corso (from ESPN College Gameday) likes to say, “not so fast my friend”.  Why?  Let’s take a closer look.

First, while you may have directly connected and followed up with people, you have undoubtedly also connected with an untold amount of people indirectly (friends of your connections, people who saw your communications, but didn’t communicate directly with you, etc).  There is no way to calculate what benefits these returned.  At the very least, one non-tangible benefit is establishing brand awareness for yourself.  A more tangible but un-measurable benefit is that these “passive connections” more than likely contributed to your sales as well. Thus either way, this benefit is missing & can’t be added to our ROI calculation.

Second, the time it takes to build customer relationships varies.  For some the time is immediate, while for others you need to work through your “marketing funnel” which may take a year or longer.  Thus all those “long-termers” are not captured under the above financial measurement either, …but ,more than likely, they too, will probably occur.

We can go on with more examples, but the point is clear, or in this case, sort of a foggy gray, measuring your ROI from Social Media marketing is difficult.  So, short of giving away a free car to everyone to encourage a direct response, is there anything we can look at to determine if we are getting the “bang for our buck”?

Perhaps the most effective way to measure an ROI for social media most tangibly is to measure the following:

  1. The amount of new links that you’ve received to your web site/ blog, etc.  Depending on the quality of these links, you should see your search engine ranking improve modestly and sometimes even dramatically.
  2. The increase in the size of your opt-in list – two things here: (1) look at “total” growth as well as (2) observe the growth trend from month to month.  You should expect increasing amounts of opt-ins, the longer you continue an effective SM campaign.
  3. Clearly, you should be able to measure & watch your web traffic grow
  4. If you are not doing this already, you should take note of the number of your posts being bookmarked on social bookmarking sites like, del.cio.us, digg.com, stumbleupon.com, etc
  5. In addition, you should see an increase in the number of “authoritative elements” you gather in your “profile” – depending on which sites you use, this could include: recommendations, questions answered, comments, thumbs up, etc

Occam’s Razor states “all other things being equal, the simplest solution is the best”.  However in this case, that doesn’t fit.  For the astute marketer or the astute social media guru, the simplest solution to measure the ROI in social media marketing may be misleading.  You need to include the above five elements to provide the most effective measurement from the benefits of your social marketing endeavors.

As a business leader, how do you measure your business’ SM success?  Feel free to comment below.

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2 Comments »

  1. […] 2007 (1) ← Five Overlooked Benefits You Need to Consider with Your Social Media ROI 8 June […]

    Pingback by Two Questions about Social Media that seem to come up again and again. · CFO Strategist June 8, 2008 @ 11:36 am
  2. i have tried social media marketing for getting our new products to be known on the market. it seems to work well specially if the audience is targeted ..

    Comment by Paige Flores May 2, 2010 @ 12:12 pm

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