What is the ROI of Social Media?

She literally screamed out, it’s all bullshit! What the hell is the ROI of social media? You tell me, is there any ROI? I was quite taken aback, considering that she made a living selling customers on social media, and more so as we were on a dinner table, with kids and friends. My initial surprise at the outburst from a professional in the field, turned to a realization, that there are many others who have the same question. Too many people are not clear about the ROI of Social Media.

First, What is ROI?

Before diving into explain the ROI of social media, let me look at the word ROI, I know it sounds silly, but bear with me. ROI – Return on Investment is a number which tells you how much you stand to make on your investment.

ROI Bank examplee.g. ROI of a Fixed Deposit (Certificate of Deposit). You put in $100, and based on the interest rate the bank offers you get your $100+x, where x is the amount of money you earn, i.e. the return on your investment. ROI is a financial term. It is money which you’re making, by investing in some asset, or some kind of activity.

 

What is the ROI of social media? Hmm something is not quite right about that question.

ROI of Social MediaSocial media is not an investment vehicle, you invest in a particular social network, e.g. Facebook or Twitter by performing certain activities there. When you think of ROI of anything you need to think of what have I invested and what is the return I’m getting. However, sometimes calculating the return of an investment can be difficult.

 

What is the ROI of your business card?

That would be a little difficult to know. However, it’s quite situational. For instance if you gave your card to a few people and because of that one of them called you and gave you a business opportunity, You’d be then able to calculate the value of handing the cards out to people. Yeah I know I’m making it sound a bit too simplistic, but you get the idea right?

 

What is the ROI of your phone?

Similarly, what if I asked you the ROI of your phone? Ok, here again, if you’re lets say an outbound sales person and making calls all day, then the ROI would be based on the business you got by making those calls.

There is obviously in both of these examples the unknowns, i.e. lets say your business card got passed on, and two people copied your number and called you, and so on and so forth.

 

What is the ROI of your website?

One more example, What about the ROI of your website? Is that more tangible? – So for example you might measure it based on the number of people who connected to you via your website and gave you some business, or bought a product from you online via your site. It’s a little easier and direct. Though ROI calculation can get complicated here if you have a multi-channel strategy (Check the reference section below if you want to get in depth information.)

How to think about Social Media ROI?

When trying to figure out the ROI of activity on social media, you’re going to calculate it based on how much money you’re putting in via resources – people, hard cash, advertising on social networks, costs of content creation, daily posts and other activity, which you do on a particular social media network, and then you’re going to evaluate the amount of business, the amount of sales this has generated for you . So in essence it is the value you derive from the social media marketing or networking activity or whatever type of activity you do on a particular social media network.

Types of activity you could do via Social Media Networks

  • Marketing
  • Selling Products and Services
  • Networking
  • Prospecting (could be as part of marketing and selling)
  • Competitive Intelligence gathering
  • Understanding gaps, issues and opportunities in the market space by listening to and analysing customer interactions.
  • Customer Service (Answering customer queries online versus the traditional call centre)

The number one mistake people make while measuring Social Media ROI

Social media platforms like Facebook, Twitter provide a number of metrics, which from the standpoint of ROI calculation are quite useless, for e.g. Likes, PTAT, Reach. None of these metrics are useful in social media ROI calculation. ROI is the economic value, it is a financial outcome. None of the typical social media metrics translate directly into any tangible business benefit, unless they are driving traffic to enable a transaction with you where you could potentially derive a financial value.

 

Social Media ROI Example

Standard Charted India Food Explorer
The bank wanted to promote credit cards via social media, here the ROI calculation could be done very simply by answering questions like how many people took a Standard Chartered credit card via the page and campaigns they ran from Facebook. So for e.g. as shown below almost five thousand people clicked on a link to know about the card. Note: this is just one of the links promoting their product.

Stanchart Example

The above statistics show not only how many leads came via Facebook but also the geographical distribution of the people who clicked on this link. It is easy for the bank to figure out exactly how many conversions(customer leads, and then adoption of their card) happened due to this activity. The cost of the campaign and their social media efforts is something they would clearly know about and using this information they can easily calculate the ROI.

Did you notice what I’m doing?

Till now I haven’t mentioned how much the return on investment will be. The reason I don’t is because the amount invested and the return on the invested amount is going to be different from one organization to the other. The ROI could be high or low. So whether you’d be satisfied by the return on investment is a question which you’d need to answer. Additionally, the ROI of running activities on different social networks would be different as they don’t necessarily have the same audience.

As the above example clearly illustrates, there is a ROI(Return on Investment) which you can get from Social Media, what one can’t say is how much will this ROI be. One can’t say whether this return on investment is good, unless one compares how this ROI is versus lets say participating in a real world conference, or against your website or blog, or TV or print advertisement, etc.

Calculating the ROI when the only medium you use to reach out to a potential customer is one channel, for e.g. Facebook is easy. However, when you’re using a multi-channel strategy, television, print, multiple social channels (think Twitter, Pinterest etc.), things can get pretty hairy as one can’t necessarily say with surety which channel affected the buyer decision and by how much percentage.

The above would be the topic of another discussion, and I’m guessing you’re clear now on why I remained silent at the dinner table. To explain what I just wrote (all 1000 plus words) would mean me having to eat a cold dinner and boring my other companions on the table.

Summary

Return on Investment is a financial outcome, how good or bad that return is depends on what your business goals are. Quite a few people complicate or misunderstand what the ROI of social media is as they mix up social media platform metrics such as Likes, Shares with some form of ROI, however that is completely incorrect. When trying to figure out the ROI of your activities on any social media network, you need to calculate it based on how much money you’re putting in via resources (people, hard cash, advertising on social networks, costs of content creation, daily posts and other activity), and what is the return it generates for you.

Interesting reads on Social Media ROI: http://www.kaushik.net/avinash/facebook-advertising-marketing-best-metrics-roi-business-value/ – Covers essentially Facebook, but applies to other social networks as well.


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