Measuring the ROI for social media marketing is tricky, but it's possible if you first have a well-thought-out strategy in place. “Get more sales” is not a strategy, it's the goal for any business and should go without saying. When considering strategy, the brand needs to figure out how it plans to generate the most profits. A brand's profit options include:
Increase the size of the customer base
Improve the retention of existing customers
Increase the frequency of transactions
Increase the value of transactions
Reduce the number of returns
Defining the approaches to use is just the start. There's much work to be done in breaking down the top-level strategy into marketing actions. Once this game plan is in place, then social media can be used to assist and implement the marketing strategy. The expected ROI can be determined from the goals.
The first step in calculating the ROI on social is to hammer out the expectations. If the plan is to use social to bring traffic to an e-commerce site, then once social gets a visitor to land it has fulfilled its duty. If the visitor fails to convert to a sale, it might be the site or it might be that social promised something the brand couldn't deliver. For example, if social is to help prevent or recapture bounces, that should be drafted into the strategy.
The next step to calculating the ROI on social is for the brand to clearly identify the ROI on different business activities and events. For example, how much is a click-through worth –- that is, if someone clicks a link we post on Twitter that leads to our Website, how much is that worth to us as a business? If they don’t click, can we find out why, and use that to improve our marketing messaging? How much is knowing the best way to market to people really worth to us? If you could find out exactly what you had to do to close the sale, how much would you pay for that information?
Finally, there are the actual ROI calculations. If the brand assigns a value of $50 to a visitor arriving on its site (derived from the average number of visitors that land before a sale is made, and the value of a sale) and calculates that social needs to bring an additional 200 visitors per month to break even, then if it brings 400 visitors, it has a 100 percent initial value on its ROI, even if the sales are disappointing. It's worth investigating why the extra visitors didn't translate into sales as planned, but unless social was targeting a different market than the strategy dictated, the fault isn't with the social media.
Even after all the planning is done, there are more questions to ask once data begins to arrive, and this is why social media metrics are both valuable and difficult to measure the return on. There is so much information available that it is a challenge to understand which pieces are actually important. This doesn’t even touch on the fact that metrics can also indicate when the assumptions in a strategy are incorrect -- but that’s a whole new post.
So yes, you can always measure the return on investment on social media provided you do your homework first and understand the real value behind your marketing actions and business events.
— Scott Kinoshita was originally a computer programmer, who retrained to marketing after realizing his big dream was to make online marketing that didn't stink.
Mitch, that is the conundrum. Unless you can separate out other influencing variables, it is nearly impossible to determine each marketing component's true value. That is why the software company I mentioned didn't try to attribute value, but more importantly to them, they looked at the combination of activities that yielded the most revenue--their ultimate goal. As Scott identified in his response to me, this doesn't always work because you may be trying to measure some interim activity (ex. increasing web site visitors), not revenue.
Mitch I agree. I have gotten great traffic from online campaigns that on the surface seemed great. But you know how many sales i got out of that traffic...... 0
@Mitch -- Strategically a failure, but if a company foolishly places value on Likes out of context the marketing activities themselves would be successful. Essentially, the company would know what generates Likes even if they never do anything that clever with them.
I assumed that everyone here already knows that Likes on their own have little value...
@smkinoshita - If a campaign's goal was simply to generate Likes, then it was a failure no matter how many Likes it generates. Companes need to have a plan to DO something with those Likes.
@kicheko - The goal for social and other marketing should be driving sales. Traffic isn't a valid business result.
OTOH, if sales aren't coming, then it might not be the fault of social marketing. Traffic is a good measurement of whether social marketing should be working, but great traffic numbers doesn't mean it is working.
I absolutely agree with defining short and long term goals. It allows you to build on early success ( or not) and leverage those learnings for future iterations
"The only issue I have with your calculation of ROI, however, is that you seem to be assuming the social media campaign operates in a vacuum."
No, that's not what I'm assuming at all -- I meant to imply the opposite.
What I'm suggesting is that each aspect to be measured for ROI must have its expectations defined explicitly. The idea being that one looks at the campaign as a whole, with each aspect -- social, advertising, web site, sales people, foot traffic -- being measured for its expected part.
If your example, we would have certain expectations from traditional media as well. In a basic example, I'd be looking for increases in search traffic for the website based on our expected search terms based on the traditional media that went out, based on the timing of the media's release.
So if we predicted a 10% conversion rate defined as site traffic from traditional media and we expected the media to reach 1,000,000 people then we would expect the traditional media to deliver 100,000 visitors to the site, with each visitor having an approximate value based on the chances of making a sale. If all our social networks can link directly, we can assume that traffic from social primarily comes from linking.
Really drilling down to determine what has impact and what doesn't falls into the realm of controlled experiments in analytics, but that's not the point of this post.
Social meanwhile would have its own expected results, and its measured against its own expectations. If we expected 15% traffic from social then its primarily measured against this expectation.
As to the credit for the sale, we'd be using analytics to determine the factors that went into the sale -- but since the expecatations were primarily traffic we're going to be looking for our primary ROI from visits.
Scott, I agree with your approach. The only issue I have with your calculation of ROI, however, is that you seem to be assuming the social media campaign operates in a vacuum. There are many marketing campaigns--digital and traditional--that touch prospects and have influence. For example, someone may be looking for a product/service like yours and may have already been to your web site, read about you in a traditional media article and finally clicked on a link in your Tweet or on your Facebook page. Do we give full credit to Twitter or Facebook for this lead?
This particular issue of determining the cause of a prospect to finally act has plagued marketing departments, even before social media came onto the scene. Some companies focus on the first marketing activity to touch the prospect, as it started the ball rolling, yet others focus on the last, as it finally had the prospect pull the trigger. One company I am aware of captures all the marketing-prospect touch points as part of the customer on-boarding process. Understanding that prospects will be engaged by multiple marketing campaigns, this company's focus is not to isolate the one key activity and attribute credit, but to determine the optimal combination of marketing activities that yields the best results.
Considering all of this, I think social media marketing ROI, like any type of marketing campaign ROI, is still a difficult task.
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