Measuring Social Media ROI Is Possible
Measuring ROI of your social media marketing IS possible. You can focus your efforts on building a network of engaged, active customers AND you can measure how social media affects the bottom line. Also because social media is NOT free (see the diagram below) it is important to demonstrate this tactic’s contribution to the bottom line in order to keep C-Level management happy and the budget allocations for social media flowing.
So why then are 84% of social media programs not measuring ROI? I think it’s due in part to a lack of understanding about the fundamentals of ROI.
Defining ROI
ROI stands for Return on Investment. Wikipedia defines ROI as:
“The ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction.”
It’s important when we talk about ROI to define the currency we are dealing with. In the business world (and  social media is no different) the currency is cold, hard cash $$$.  Nothing else.
You have to measure your investment (time, manpower, technology, etc) in terms of $$$ in order to calculate your return (revenue) in $$$. Anything short of that is not measuring the value added to your businesses’ bottom line from social media.
If you are measuring only things like impressions, click through rates, Â conversations, or followers you are selling yourself short. You need to take that extra step to tie your results to a $$$ financial amount.
Don’t get me wrong,  impressions, click through rates,  conversations, and  followers are all important. They are at the heart of social media engagement but until you are able to tie the “Return” to the “Investment” those measurements are a vague representation of your success (or failure). Your C-Level management could care less about engagement and conversation. They want to know how your allocation of time and money has either saved the company money $$$ OR generated an increase in revenue $$$.
Measuring ROI for social media is no different than measuring ROI of direct mail or radio. As fellow social media ROI advocate Olivier Blanchard said, “ROI is 100% media agnostic.” Meaning that ROI can be determined no matter what communication vehicle you are using. Social media is no different  than any other business endeavor in this regard.
How to Measure Social Media ROI
In upcoming blog posts I will focus on the who, what, where, why, and when of measuring social media ROI. Until then repeat to yourself that “Measuring social media ROI is possible” and get ready to prove to yourself and others that social media can indeed make a valuable contribution to your overall integrated marketing efforts.
3 responses to "Measuring Social Media ROI Is Possible"
10:11 on February 15th, 2010
Steve, thanks for opening this conversation. I hope that you will be able to shed a light on exactly how to tie ROI aka cold hard cash back to the actions that made it happen.
So far I agree with the general idea that social media is not like traditional marketing. In traditional marketing you can send out a postcard or directmail with a call to action and see exactly how many people took you up on it. With social media, how do you send out a tweet that gets retweeted or maybe have a blog post that get retweeted and know exactly how to measure based on how much it cost, how many it reached and who took you up on the offer?
What I do now when I start a new client with social media tools is to take a baseline of how many clients they currently have then as they gain new clients I subtract the ones that came in through their traditional marketing activities like direct mail and come up with a net new clients number that we attribute to the addition of social media tactics.
I read that way of doing it somewhere so if you have something different to add, I’m all ears. Oh, and can you make it easy… ok just joking about that.