Social Media ROI – three types of Social Media Return

A few days ago, while discussing the Social Media ROI with a client, I realized that we were talking about two different things. It got me thinking – there are many different ways of defining the Social Media ROI. Some definitions have already been made Social Media Part 4 and Social Media Part 5. In this post, we will discuss three additional types.

ROI is a ratio between a return and its investment. Within marketing, the ROI is primarily used to compare the efficiency of two marketing campaigns.

  • Example 1: say for instance that you have two marketing campaigns with the same amount of investment. One marketing campaign generates a higher return than the other. This campaign is said to be more efficient.
  • Example 2: two marketing campaigns generate the same return but one campaign spends less. This campaign is said to be more efficient.

The ROI can be measured a few different ways.

1. First, the short term ROI where you directly measure marketing investment to sales.  For instance, you spend $100 in marketing and your return (your sales), directly related to the $100 marketing investment, is $300. Your ROI is now ($300-$100)/$100 = 200%. The tough part is to directly correlate the marketing investment with sales.

2. The second ROI is the long term ROI. This is where your return include less tangible things like increased brand awareness and increased long term purchase intent. It is tough to calculate the return but we all know instinctively that there is a tangible return.

Both the short term and the long term return increases your company’s top line and therefore the bottom line. See Example 1 above.

3. The third ROI is the cost reduction ROI, which measures incremental savings from a campaign. The idea is that “two returns of the same type and quality have the same value, even if they are from two different originations.”

  • Say for instance an insight: an insight that would have cost $150 in a focus group, that insight (same type and quality) is still worth $150 even if it came from a comment on your company blog.
  • Another example, assume it costs your company $15 on average to handle a support call. If your social media campaign prevents a support call because a user finds the answer on your company forum, then you saved the company $15.

In the cost reduction ROI, the return does not increase your company’s top line. Instead, the return is savings that decreases your company’s expenses. Thus, your company’s bottom line increases due to less costs. See Example 2 above.

Social media marketing is in general about the long-term ROI by listening to and have conversation with your customer. The idea is that things like brand awareness, goodwill and purchase intent will increase over time. Having said that, there is also a lot of value in short term ROI in social media.

In the ROI application, we are looking at all three types of return. Each is important in their own way but taken together, you get a very good estimate on the total Social Media Return and ROI.

Comments are a fundamental part of social media, so do your social duty and add a comment with your thoughts.

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