Social Media ROI: Mythical Monster or Concept Evolution?
By Josh “Shua” Peters
Photo by kevindooley
ROI=
(Gain of investment – Cost of investment) Cost of investment
One of the most intensely debated subjects in social media is ROI. Return On Investment. Traditionally ROI is calculated using the equation above. This has worked for many many many years by people the world over to decide if what they are doing makes monetary sense. That’s all well and good but what if your goal is to create a conversation? Build a community and engage in meaningful dialogue with your customers? How do you equate the dollar amount of a conversation? Yes there are numbers involved with social media and they can be looked at in any number of ways. Followers, friends, contacts, etc. You can add up your comments and emails then divide it by the number of friends on your profile to get a number. Add up your tweets and divide by days you’ve been tweeting to get yet another number. If you want yet another number do the same thing with your profiles, but really? What does it all mean? This question seems you be driving you, me, and the internet crazy. What’s a fair metric for social media success and ROI? What’s the dollar amount? How is it calculated? Well then than your luck star, rabbit foot, horseshoe what ever because I’m going to tell you. Social media ROI (as with just about everything) start at the beginning. When sitting down with a social media consultant, marketing team, etc. to create your strategies the first thing you’ll want to do is define your goals by asking yourself these questions. • What are my reasons for using social media? • What do I hope to accomplish? • Am I willing to commit to the long haul?
If your reasons for utilizing social media boils down to making money quickly then I’d suggest you try something else. Most likely you’re going to “loose”* money in the short term. If you are thinking about only using it for a limited time then you’ll never reap the full benefits and your brand could experience a backlash from your online customers. One of the worst things you could do (and would guarantee a negative ROI) is to start a campaign and then abandon it. Start small and grow as you become more familiar with the tools, methods, and ideas behind social media. If you’re unsure hire a social media consultant or company to come in and give a presentation, do workshops, hold strategy sessions, etc.
*I’ll explain later
Social media is such a different animal, there isn’t going to be a one size fits all method for calculating your ROI. Dell has different metrics than JetBlue who will differ from Zappos. It all comes down to your definition of social media success. So. Now that we have that out of the way let’s go get some equation definitions. Sounds fun huh?
Social media requires a shift in perception. Stop seeing people as walking $dollar signs$. See them as people. That’s’ why many of us use social media. It’s the personal interaction that drives us, we use it to connect with other people (hence the reason it’s called SOCIAL media). If you remember this one thing as we continue it will help you out tremendously. Social media is nothing new, it’s just the evolution of communication.
Equation DEfinitions
Cost of Investment (in this case COI = Time + Tools + Fees)
The good news is that most of the tools are free. No need to run out and buy $1,000 camcorders, $700 cameras, or $2,000 software suits. Just look at Robert Scoble who does many of his interviews using his phone or flip camcorder. The biggest cost in social media is Time. In many cases a digital camcorder like a flip or good Webcam, a decent voice recorder or microphone for your computer, and a $70 digital camera will do more than to suffice. Especially when you start out. Time This cost will be calculated based on your goals and your dedication to implementation. Do you want a certain part of your / your employees day dedicated to social media? Do you want it to be incorporated into the rest of you / your employee’s daily duties? Or are you going to have people who are dedicated to the tools 8 hours a day? I would recommend the 2nd or 3rd options, but however you structure it this is the first part of your COI. Depending on how much you pay your employees you might already be looking at the cost and freaking out a bit. Remember that you’re paying those people whether or not they use these powerful, (mostly) free tools we call social media.
Fees Social media consultants, trainers, strategists, etc don’t work for free. When your company is ready to move forward with social media but you’re just not sure how to go about it you’ll need one of these people (like me!). Make sure that you hire one that can fit the role of all three positions (like me!). Okay, enough of the shameless self promotion. If you’re serious about social media but have no idea where to start the fee you’ll pay a consultant to come in and analyze, research, strategize, and train your employees is going to be worth it. Tools Like I said above. Most tools are free. Some have small monthly fees and only the more specialized tools have large fees. The more specialized and powerful the tool is the more expensive it will be (usually). So now add it all up. That’s your Cost of Investment. The largest part of that total is Time. Seriously though you’re paying them anyways so don’t take that huge number fully to heart just yet. It’s not as scary as it seems and once you’ve got everything implemented and running you won’t even give it a second thought. It will juts become part of how you do business. Okay, now on to Gain of investment.
Gain of Investment
This is where it gets hairy and why clearly stating your goals at the beginning is so important. If you’re hoping for quick sales go ahead and just assume this # as being 0. If you want to build a conversation around your brand and extend the personality and image of your company online then this is where you’ve got some work to do. It’s also where the whole conundrum of social media ROI comes from. Lets assume that you equate every friend as $30 worth of social money, blog mentions as $300, retweets as $200, and brand advocates as $1000. If you run what might be thought of as a good campaign you will be able to add up the social dollars and then plug it into your equation to get your ROI. Problem is that banks don’t take social dollars because they don’t exist. So why’d I even bring it up? Every good story needs conflict, but mostly to illustrate a point. How do you put a dollar amount on a conversation? Social media requires a shift in perception. Is it possible to make money using social media? Yes, look at Dell. Have companies made money using social media? Absolutely, (seriously, go look at Dell). Are YOU going to make money using social media? Maybe. Social media is more like a soft sell. It should be viewed as an extension of the company. If it helps look at it like this. Customer service, tech support, and related services are a “loss” for companies. It’s considered an acceptable loss because it’s necessary to support your products and keep customers happy. When you think of social media, think of it as brand support. *
*That’s why it was “loose”
This change in perception, THAT is where your ROI lies. Not in dollars and cents tucked away in some ledger. Out in the open for all to see and participate in. Your ROI is the community you create around your brand.
I know I know, you want to kill me now, but before you do that consider these questions and then we can move to the next section. • How much is a brand advocate worth who tells 10 people about your company? • What if they tell 100? • 1000? • What’s the dollar value of an active and engaged customer community? • How much would you pay for instant feedback and input? • How much do you / would you pay for the perfect focus group? • How much is it worth to build a product your customers tell you they will buy? You have to discover your ROI for yourself. I can’t tell you what your ROI metric should be because I don’t know you or your company. I would like to. If you stop by the blog or send me an email then I can get to know you, but until we talk I don’t know anything about you (and neither does anyone else). If we talked we would talk about goals and build a plan around those goals and that’s how we would measure your ROI. Depending on your personality you are either feeling very angry because I haven’t “answered your question”, elated at my answer, or kind of “meh” because you didn’t care to begin with and you’re just reading this to pass the time. If you’re elated go ahead and exit now. If you still feel like I haven’t answered the ROI riddle then keep reading. I’ve got numerical based measurements coming up.
If you search the web for a couple of hours you’re going to find someone saying they have a list of ways to measure social media ROI. If you read how it’s done not a single one of them will follow the accepted equation for ROI. What you will find is people putting together numbers that sound like ROI but read like analytics. If you have a blog then most likely you’ve got an analytics program running to tell you where your blog readers are coming from, what they did to find you, which pages they go to, and so on. Have you ever looked at those numbers and said “the ROI of my blog is 375 visitors per day”? Hopefully not. If you have then you might want to talk to someone like Avinash Kaushik. You can use any number of the following methods or sites to analyze your social media efforts. This list was culled from multiple group discussions I held on LinkedIn, Q&A from around the web, the insights of others, and a few of my own methods. So without further adieu here’s a list of number making methods, sites, products etc • Measure in bound links from your social media profiles and any resulting sales. • Traffic patterns and ad click rates from social media outposts • Engagement of blog posts: Comments + In Bound Links / Subscribers • Sites / products like ViralTracker, Techrigy, and Radian6 • Buzz measurement: Look for an increase in keywords on Technorati charts, Google trend labs, etc • Ratings increase for page view and Technorati authority • Referrals • Branded searches • Time spent on the site, bounce rate, new vs. returning visitors • Inquiries, registrations, transactions • Searching social networks, microblogging, etc for brand mentions • Tracking employee (CEO, VP, MGR, coder, etc) names and places mentioned • Search engine mentions of company name • Google Analytics, Omniture, FeedBurner and related products That’s just the beginning. The amount of analysis you can do, they ways to can track, and the numbers you can pull from social media are just plain staggering. I could fill up another dozen pages if I listed it all. If you’re thinking of using social media for marketing purposes ask yourself this if your still on the fence ask your self this. How accurate are the stats you can pull from a billboard campaign? Magazine ad? If you mashed up the info from several analytics sites and calculated every second spent utilizing the various tools you still wouldn’t have am accurate ROI, because you still haven’t calculated the worth of a group of concerned and engaged people. If you attempt that then you also have to figure out what the “ROI” is of sharing a link to some interesting content via Twitter, or bookmarking the works of others on Delicious for people to find. Every action will have to start figuring into the financial outcome of what you’re doing and you will lose sight of your goal. Social media rewards communication, transparency, and genuine community interest. If you barge onto the scene like a snake oil peddler on a pissed off elephant hocking your wares left and right you’re going to be seen as a spammer. No one will talk to you, most services will block you / cancel your accounts, and you might even loose a percentage of your current customers. As you get more advanced in your usage and methods remember you’ll create your own definition of ROI. Good social media efforts are goal driven.
ROI vs. Analytics
Call me an altruistic believer but what I want to impart to you before you check out my bio and references is this. There are ways to enumerate and quantify your progress and “effectiveness” but social media ROI is indefinable by anyone but you. It’s all about the goals you set and the community you create.
Conclusion
Josh “Shua” Peters (me) is thought to be crazy by some and delightful by others. I’ve spent over 2 years researching and studying the social media scene and watching with fascination as is grew and grew and I’m incredibly excited to see it grow some more. The evolution of this communication medium fascinates me to no end and my wife often refers to herself as a social media widow (but has now started her own blog). I work with a great group of guys on a project called RoyalAnts, and I blog at Shuaism.com where you can also find all the various ways to connect with me. I am passionate about social media and as a bit of self promotion if you check out my site you can see what I’m able to do for you and your company (third link on the left). Thank you for reading, Josh “Shua” Peters
Author Bio
Image credits
All images were used under the creative commons dealy Einstein by cambodia4kidsorg Grr! by Martin Kingsley At Lands End by *clairity* Chain by Ella's Dad
Resources Delicious tag ROI Business Week Topic Social Media Analytics LinkedIn Groups Social Media Club, Social Media Marketing, and Social Media Mafia
Also check out these other links you might find engaging My Squidoo lens about social media ROI (my first lens!) http://www.squidoo.com/Social-Media-ROI The link to my blog feed for more info and free book notices http://feeds.feedburner.com/shuaism
Copyright Josh Peters 2008, but please feel free to send this to anyone you think could use it. Give it to your boss, your CMO, your CTO, your supervisor, friends, family, relatives etc. Post it on your site for download, share it in the pirate bay, I don’t care but what ever you do don’t charge for it. Not that you would get any money from it, but give it away. This is a free eBook meant to create discussion and thought, please don’t change any part of it but feel free to quote it (with credit of course) anytime you want.
Special thanks to all the people I talked to about this subject, our conversations were invaluable.