Social Media ROI – Fact or Fiction?

Image Credit:  http://www.webguild.org/wp-content/uploads/2010/10/roi.jpg

ROI (Return On Investment) is a rather simple mathematical calculation that evaluates the efficiency of an investment or its performance in comparison to other investments.  How simple?  Here it is:  Gains – Costs / Costs = ROI.  Pretty nifty, right?

Here’s an example – if you use $100 of budget that nets $150 in revenue or gains your ROI is 50% (150 – 100 / 100 = .50).

The basic ROI equation becomes rather tricky in the Social Media realm.  How valuable is a Twitter follower?  What quantitative impact does a Facebook wall comment provide?  Is the quantity of LinkedIn connections more important than the quality?

Social Media is a channel of open communication that exists outside of the normal boundaries of push and pull marketing and is difficult to provide firm ROI in the traditional sense.  And this is where things get tricky …

Trying to prove the value of Social Media in a traditional ROI sense is rather difficult.  You cannot easily quantify the value add of a Social Media presence in terms of traditional ROI gains.  In fact, you’re more likely to show a loss when using a traditional ROI model.  Social Media, as a channel, should be analyzed from a branding, engagement, influence, and competitive value add perspective as a component of strategic marketing initiatives.  This allows for qualitative measurements of individual marketing channels that combined lead to revenue gains.  Strategic marketing encompasses the channels and messaging that will deliver on business initiatives (i.e. sales, hires, brand recall, viral marketing, etc.).  Thus, the Social Media aspect of marketing ROI cannot be measured alone.

I guarantee you that a marketing executive will get fired looked at funny if they delivered an ROI analysis that included this statement: “We spent $50,000 on a Facebook page and have not been able to prove that anyone posting comments on the wall or who has followed the page actually buys our products.  But, it looks cool. And, everyone else is doing it.”

Social Media’s ROI should (typically) be tied to branding and influence initiatives within the marketing budget and strategy.  Branding ROI is component of marketing ROI and should never be analyzed independently … rather, the entire marketing budget (thus, your strategy delivery mechanism) should be utilized against total revenues or gains to determine effectiveness of the strategy.  No results = Bad strategy.  Plain and simple.  Simply creating a corporate Facebook page or Twitter account is a tactical response to a strategic problem.  Changing your channels of communications as part of a shift in marketing mix that is quantifiable in gains (ROI) is a strategic move.

That marketing executive I mentioned earlier would look like a rockstar if their statement included:  “We built a fan base to mitigate negative public comments and bolster positive consumer opinions that would impact our brand.  We leveraged sponsored campaigns on this channel (Facebook) that were tied to the page and tracked click-throughs and sales via web analytics …”  and so on.

At the end of the day, it’s all about ROI.  Plain and simple.  Did your Facebook, Twitter, LinkedIn, Tumblr, etc. create gains on its own or was it part of a marketing mix that worked in unison from a strategic perspective to deliver gains?  The person signing checks or giving you a budget doesn’t care about fans, followers, comments, and so on … they are concerned with your strategy and its ultimate impact on revenue.  Positioning social media as a progressive and innovative component of your overall strategy makes you look like a rockstar – if, and only if, that strategy, as a whole, actually delivers something quantifiable like revenues, hires, etc.

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About Michael Hanson

Change Agent and 2011 MBA with more than 15 years of deep experience in Business Development, Marketing, Branding and Technology. Social Media and Mobile Marketing Specialist. View all posts by Michael Hanson

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