Social Media ROI – Part 4

Ok, so it has been a while since last blog posting – 8 months to be exact.  Ouch!

During this time a few things have changed in the Social Media ROI world.  The most important thing – and the very best – is that the discussion whether we “should or should not measure Social Media ROI” have changed to “how do we measure Social Media ROI?”

The difficult part of measuring the Social Media ROI has been to define the return.  Some people aruge that the return should be return on engagement or return on innovation however that does not make the return useful in a ROI calculation.  Many blog postings use application or web analytics to calculate the Social Media ROI but again those numbers are not useful in the ROI calculation.  The idea is that you need to ensure that the value of the return is in dollars and cents otherwise, very simply, you cannot calculate the Social Media ROI.

The return on Social Media ROI is actually an aggregate of many return channels. For instance, a return channel can be the value of a consumer insight.  We know that insights are good – insights are used by the company to enhance its products and services – so therefore an insight has an intrinsic value (when we put a dollar value on a return channel, we say that we normalize the return channel into dollars and cents).  If your social media campaign generates insights, then your social media campaign generates value and that value is your return channel for insights.

Another return channel is trade media mentions.  If your social media campaign is good enough to be written up by the trade media, then that write-up is marketing value and that value is a return.

By combining the returns of all return channels, you get the total return of the campaign.  Now, to calculate the ROI, you also need investment.  The investment should be easy – it is just the cost of the technology and the cost of the campaign.

The ROI formula is simply ROI = (return – cost)/cost% = your return on investment.

Nevertheless, without each return being normalized into to dollars and cents, the ROI calculation becomes meaningless.

Bottom line is that for each return channel, you first need to define the return channel and then you need to put a dollar value on return channel.  It’s tough but doable.

Now, once this has been done, you get to the fun part which is to play with the numbers.

As mentioned in the previous post, Social Media ROI – Part 3, we have created a Social Media ROI Calculator, in Excel format, that handles the work for you.  The image shows the full version’s dashboard.  Download the lite version of the Social Media ROI Calculator.

So the trick is to normalize return channels into dollars and cents. This is HUGE because from the normalized return channels, you can a) compare each return channel and if required, shift the social media campaign strategy in mid-stream from what doesn’t work to what works, and b) forecast the total campaign return and calculate the social media return on investment (ROI).

Normalized return channels benefits you:

1. You get better estimated returns and thereby the Social Media ROI using different worst and best cases.  Simply, a solid realistic forecast dramatically increases the success rate of a project.
2. Because returns are normalized, campaign stakeholders start to communicate using a common language and thereby avoiding costly misunderstandings.
3. Going through the effort of normalizing returns greatly decrease sales cycles by providing faster and better estimates for a social media campaign, both internally and externally.

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