How to REALLY Measure the ROI of Social Media
This is a guest post by Eugene Farber.
“How do you measure the ROI of your social media efforts?”
It’s a question being discussed ad nauseum of late, and rightfully so. Social media investment is a legitimate issue that businesses have to face, now more than ever. So, being the problem solver that I am, I decided to figure out how to measure the ROI of social media once and for all.
The quick answer is there is no answer!
If you want a long-winded explanation, read on.
Enough “Whys” Already!
For my first stop on the way to figuring out how to complete this elusive calculation I went to all of the usual suspects.
What I discovered actually got on my nerves a little bit. There were no concrete answers. For all of the promises of “how-to” in the titles, all I got was “why.”
Why you need a strategy before entering the realm of social media.
Why you should use social media to begin with.
Why you should measure the ROI of your social media campaigns!
…OK great! But how?
Some Actual Value…
Luckily my next stop resulted in some actual numbers. This was it! I was finally going to figure it out!
To prove that social media provides a great return on investment (if used properly) The Next Web published 10 case studies on the ROI of social media. These are gleaming examples of social media done right. Case studies which every company should take as an example and follow suit.
Social media management firm Syncapse took it one step further. They recently conducted a study and concluded that the average Facebook fan is worth $136.38.
Now I just have to figure out how to get a lot of Facebook fans and I’m ready to retire!
The Caveats
The Syncapse study is utterly useless. To perform the study they used a selection of companies that are not representative of the average small business. Even Syncapse, within the study, states that no two fans are the same. Well no two companies are the same either. There are too many variables to make the $136.38 figure mean anything significant.
Plus, that takes care of the return part. What about the investment?
Sure Facebook is free, but someone has to run the page and the campaigns on there. How many man-hours does it take to keep those campaigns working. How many man-hours does it take for large companies like Starbucks to keep the customer engagement going?!
The “ROI from Facebook Ads” case study mentioned on TNW (originally published on Search Engine Journal) begins to explore the actual investment part of the calculation. But they still fall short.
The dollar cost of Facebook ads still doesn’t tell me what the REAL investment was. Hours of research to figure out how Facebook ads work? Keyword research? Ad design? Maybe even hiring a consultant to do the work for you?!
Strictly measuring ROI in terms of dollars spent on ads doesn’t really give you a true representation.
Attempting an Actual Measurement…
A recent post written by Jay Baer of Convince&Convert is probably the best summary of actual ROI measurement I’ve seen. The post focuses on the ROI of blogging but can be extended to any social media activity (and really any activity in general).
The first step is to identify what activities you (or your company) is performing and what it costs. Consider all costs including salaries, direct expenses and overhead. If you want to get really fancy (and I know you do) you may want to take into account the opportunity cost of time spent on these activities and what you could be accomplishing with those resources.
Once you have an idea of what your costs are you need to figure out what the return on those activities is. To do this you need to figure out what your revenue-producing actions are (what behaviors your customers can exhibit to drive revenue). Is it blog subscriptions? Is it opt-in subscriptions? Are you just focusing on sales?
As you can see the actual calculation is simple, but not easy. There are many variables to consider and the outcome of your ROI test greatly depends on which factors you focus on.
For larger companies the ROI becomes even more of an estimate because overhead allocations are often subjective. This also means that departments have to get together and interact (i.e. marketing and accounting departments). And how often does that go smoothly?
But even if you do get of that straightened out, it may be impossible (or at least very inaccurate) to measure true ROI in a short-term time frame.
Are We Asking the Right Question?
Gary Vaynerchuk has made a hugely successful business through social media engagement. He has made an even bigger business by promoting the idea of social media engagement.
As he points out in his book The Thank You Economy, it is the businesses that don’t begin to engage with their customers on a personal level that will fall to the wayside.
People born today are born in to a world that is connected more than ever before. By the time they are consumers they will expect connecting and interacting with businesses to be easy.
This may sound ludicrous, but Gary V believes it to be true. And who am I to argue with Gary V?
My grandmother never had a computer.
My parents are now using the internet for purchasing, yet they tend to stay away from the social network scene as much as possible.
I am in my mid-20s, on the cusp where the social media outbreak occurred.
My kids will be born into a world where the President of the United States having a town-hall meeting over Twitter would be a thing of the past (the effectiveness and legitimacy of said meeting is a debate for another day).
The evolution is clear. And in a world that is evolving faster than ever before, maybe our questions should be evolving as well.
Are We Measuring the Right Metrics?
Maybe the answer to the question is no. Maybe the ROI on social media engagement doesn’t even matter at this point.
Perhaps it isn’t the ROI of social media we should be measuring, but rather the LOLOI – the loss on lack of investment (yeah…I just made that up).
How many potential customers might you be losing if you aren’t engaging in conversation with them? What if your competitors are engaging them? People would rather buy from people they like and can relate to. With social media even the biggest corporations can become more personable.
So at this point the wiser question might not be “what is the cost of implementing a social media strategy?” but rather “what is the cost of not implementing one?”.
A Learning Curve
In truth the investment, and the return, does matter. It doesn’t make sense to pump resources into social media if you can’t afford it. If all of your resources are getting sucked up by social media and not enough are being put into actual business operations then you have a serious problem on your hands.
But it is important to note that social media tools are just that…tools. And the magic isn’t in the tool, but rather how you use it. It doesn’t have to cost an arm and a leg, but it does take some practice.
There are certainly learning curves when it comes to using social media. And each individual and business has its own.
But it may be a good idea to get in now, while it is still early, to perfect the craft before it becomes an absolute necessity.
The Conclusion
There may not be a simple answer to measuring the ROI of social media because there are too many variables. And each individual and company needs to figure out which of those variables they need to focus on.
There is definitely no blanket one-size-fits-all answer. But just because it may not be easy to measure the ROI of social media, doesn’t mean you shouldn’t attempt it.
Go for it. Play around. Test different variables. Finagle some numbers.
And remember…the ROI of social media might not even be the right thing to measure.
About the author: Eugene Farber is an accountant turned internet entrepreneur. He blogs about internet marketing, business and life at Reality Burst. Visit his site today for a free Social Media ROI checklist, and connect with Eugene on Twitter @EugeneFarber.
image: Leads United
image: Debs
I think a lot of the struggle with social media ROI is not having a clear social media objective in the first place. Brand awareness and proxies for reach are okay, but at the end of the day, most C-levels care about conversions.
I also think there are lots of tools that make our lives as social media analysts and marketers easier that most people don't know about. I wrote about this about a month ago on my blog for a friend of mine:
digitalanalytics101.com/2012/01/the-lazy-persons-guide-to-being-a-social-media-rock-star/
-April
Great read Eugene, I was as frustrated as you when looking for concreate answers to SM-ROI. It seems there are more variables than the industry leaders care to isolate and control. Not sure how they would be controlled, but there are definitely far too many to identify...
Very interesting piece - shows how hard it is to measure the type of input and investment required at prcommt we are trying to identify the input we are going to give to social media and unfortunately its not that easy especially as we are based in a very small country and as we are operating and probably of interest to a small segment of Facebook users.
Awesome piece here, Eugene!
I feel the biggest take-away is that the over-used concept of ROI tends to put us in a mindset that focuses on the 'ol numbers game. It's all about selling more, getting more traffic, filling up funnels, blanketing the marketplace, and blah blah blah... But that means we often overlook relationships.
(LOLOI - I dig!)
When I am on the consumer side of the business equation, I like to feel valued. I don't want to feel like another number. For that, there are plenty of other alternatives, right? When the owners of a company reach out to me, I feel like a VIP. sharelomer and Kelly of twylah are two people that come to mind when I think of this. Heck dino_dogan
and dancristo
are great examples too!
(LiveFyre apparently does not like when I use Opera. Ha)
Each of these wonderful folks has their own approach to social media and some are clearly more active and engaging than others.. but they make sure they at least greet everyone whenever possible. That simple little effort goes a long way.
What we take for granted is the fact that our customers may very well be on the fence, no matter how great our services and products are. That simple "hello" via Twitter or your social platform of choice may be all it takes to keep them and perhaps even make a true fan out of them.
So, when folks tell me that social media is not important for their online marketing strategy, I ask them, "Do you want more brand advocates?" Better yet, who CAN'T use more close friends and colleagues, right?
Now, moving on from my ramblings here...
Measuring progress is important but do not fall into the trap of bean counting. There are many benefits to social media and it's not always something direct or tangible. At the very least, being plugged in and well-connected makes you easier to find (and your brand THAT much more pervasive). 8)
Speaking of being "on the fence", if it weren't for the engaging folks on Triberr, I would not have met many of you. All it took was Dino reaching out to me via social media and finding my blogs to make that warm connection into something sizzling hot.. And, no, not that way. Social media is very much about lead nurturing, not just lead generation.. As rdempsey
said on a recent blog entry, "Help first, sell second." Focus on relationships, folks... or do things the hard way. ;o)
(LiveFyre is dangerous.. It makes me want to name drop quite a bit. haha)
Yogizilla Thx for the mention pal :) super honored to be in this list :) another great example of founders that reach out is the founders of @bufferapp :) @LeoWid :)
Thx for this great post @dannyBrown it really is an important topic to talk of.. the importance of ROI is critical when biz want to align their efforts with biz value :)
Good post, Eugene. I'm speaking on a similar topic at a conference next week and you've driven home a lot of points that I intend to bring up. Reiterating a bit on what you said, completely agree that there is no magic formula to success and success metrics vary (or at least they should) from brand to brand.
Most of the small companies are still blissfully ignorant of ROI influence on customer choice of products/services. This should help them know that you can no longer ignore FB, Twitter or Youtube while planing their marketing strategy.
Online Business Virtual Assistant
Eugene what's up man! Dude, what an awesome post, man! Not too many posts out there impress me but let me tell you that this one did!
I've never read Gary's book but it is definitely on my to do list. I've heard a lot of mixed reviews on it but I dont let that scare me. Everyone has their own perspective.
I love what you had to say about whether we are asking the right question or nor in regards tot he ROI of Social Media marketing.
This kind of ties over with the discussion we were having over at my blog where i mentioned that Business is an Art and not a Science. Well, I would also apply that to Social Media.
What works for me won't necessarily work for you because everyone is unique.
You seem to agree with this logic because in one of your sentences above you mentioned that when "social media is done right" X results are achieved...
In this case, X is the YOU factor. How well can you execute on the marketing strategy, how well is your story making in impact on your target audience, Are you targeting a niche audience, how involved is your audience in your vision, etc. All of these are questions and factors that make up the X variable and unfortunately there are so many that I cannot list them all here.
I think you're definitely on the right track though and you;re definitely thinking outside of the box when it comes to what are the metrics that we are using to test results and what are the questions that we should really be asking.
You;ve got me thinking about this one, Eugene and I love it when someone can leave me in this kind of mode!
Awesome post man!
HectorAvellaned Thanks Hector!
This whole ROI thing has so many variables it's insane. And JayBaer said it perfectly in a comment below, eventually the question becomes "what's the ROI of measuring ROI?"
I think garyvee 's books will always get mixed reviews just based on their popularity. Similar to Tim Ferriss. Anytime he comes out with a book he'll usually split people in half, you either love it or you hate it. I prefer to read with an open but critical mind and pick out the things that make sense to me.
My latest conversation: About Me
Ack. I see much that I agree with mixed with much that I don't. I feel muddled.
Having read Olivier Blanchard's book, "Social Media ROI," I can't see what all the fuss is about. This isn't rocket science. It's just new business processes/initiatives being evaluated like any other business metric.
WHY is perhaps the MOST IMPORTANT question to ask. WHY is the business/client considering the use of social media in the first place? WHAT do they want to achieve? Before anyone can advise HOW to use social media, they need to know WHAT the client wants to do with it.
*You figure ROI on a print ad with a coupon which will be forcibly stuffed into every mailbox on the block (and immediately recycled), why can't you figure ROI on a Facebook campaign with a discount code?
*You figure ROI on a new brick-and-mortar, guestimating how many transacting customers will walk through the door, but you can't figure ROI on your own blog where you know exactly how many people visit and buy?
*You spend millions buying a fancy new system to herd your customers through automation hell before they get to your powerless, level 1 representative, and you can figure out how that reduces costs, but you can't figure how having a team of tactical customer service/sales ninjas on Twitter who can both solve problems and close deals stands to do not only that but also increase revenues?
GET OUTTA TOWN. HAHA.
When you know where you are in relation to where you want to go, THEN you're ready for conversations surrounding WHAT your objectives are, HOW you will drive them - with whatever tools - and HOW to measure your progress.
WHY some people can't readily communicate that just leaves me wondering how they manage to stay in business in the first place. I mean, what the hell, ya know?
Brian Driggs I do know! And I agree. It's all about figuring out your objectives: what you are trying to accomplish, why you are trying to accomplish it, and who you are trying to accomplish it with.
But, unfortunately, that seems to be the hardest part of this whole thing. Do you measure how many friends you have on Facebook? How many followers you have on Twitter? There are so many options, and you really need to drill down on it.
Once you figure all that out, then it's just a matter of plugging in some numbers into an equation.
My latest conversation: About Me
EugeneFarber As a former salesman, I'd say yes, you do measure your FB friends, Twitter followers, LinkedIn connections, and such, just like to keep track of how many times you dial that phone, how many times you get through, how many times you get hung-up on. You figure out the trend and you track that trend so you can evaluate your performance - but only insomuch as that sort of thing keeps you driven to perform. And only when you've got a horse in front of that cart.
If I know my average Facebook fan is worth $5 in my pocket, then I know picking up 100 more fans stands to potentially net me $500 in my pocket. I need to bear in mind WHY anyone would want to become a fan and seek to authentically build that fanbase (as opposed to the sadly popular trend of buying fans), but if I can provide sufficient value to people to gain their loyalty and convert a consistent percentage of them to paying customers, then yes, I'm going to count my fans to keep me motivated to continue serving that audience.
There are myriad options available, but my point was that the business needs to layout what they want to accomplish BEFORE they start any of this.
Brian Driggs I'm trying to come up with an argument for that last statement...but I can't :)
My latest conversation: About Me
EugeneFarber ;)
Hey Eugene,
I've often thought about assessing the ROI of social media. I've never been able to find anything that made me think that "this or that is the formula".
In my eyes, somethings are flat impossible to assess a true ROI of. I could never give a true ROI of my cell phone...there's no way. I can connect to anything from it and it allows me to increase my productivity. I've always thought of social media along the same lines...not being easy to fully understand its ROI.
HOWEVER! Man - you did a great job sharing some ways to get a good gauge of the effectiveness of social media efforts.
Danny - thanks for hosting this guest post by Eugene. I hope things are well for you up north!
Jk Allen I don't think your cell phone is worth the investment Jk, toss it out :). I totally get what you're saying, and I'm with you along the same lines of thinking. It's incredibly difficult to decide which metrics you should measure before you even start.
And for individuals and small businesses intuition may be the best gauge of which social media outlets you should be using (if any at all).
I know someone who HATES Facebook but says LinkedIn has been working for her. She wanted to know if I could set up a Facebook page for her.My instant reaction was "Why?! You just said you hate it, and LinkedIn is working for you!".
There are so many options that sometimes your intuition or personal preferences can decide the "ROI" for you.
My latest conversation: About Me
EugeneFarberJk Allen Especially if it's anything but an Android. #jussayin'
PS - Jk, all good my man, thanks, hope the same is true of you and yours. :)
DannyBrownJk Allen Uh oh, I'm still on a BlackBerry :/
My latest conversation: About Me
Conversation from Twitter
1day1brand Thanks for sharing my post!
Steveology Thanks for sharing my post Steve!
EugeneFarber It is a great post, well researched. Was my pleasure to read and share. Have a great weekend.
DebWeinstein Thanks for the RT Deb!
EugeneFarber a pleasure, #nicetomeetyou and to make a new friend. Happy #FF!
countUP Hallo, grüße from #Vienna -> schönen Freitag -> Andreas #Folllower
tometweetme Danke, gebe ich gerne zurück! :-) #ff
yogizilla Amazing mention pal :) i really appreciate it :) thx a lot & thx for dannybrown for this great post..
DebWeinstein EugeneFarber dannybrown Love this.
susie_parker Thank you! :)
yogizilla you are too much!! TY!! Much appreciated. :))
yogizilla Thanks for the mention and all the support Yomar! You're awesome!
EugeneFarber You got it, bro! Remember: when I come up to NYC next time, we got to hang and have some brewskies. 8)
yogizilla For sure dude!
rogerchristie Good question! :)
raventools Thanks for the mention!
SHerdegen Thanks for the RT!
QC_SEO Thanks for the RT!
HiCaliber1 Thanks for the mention!
socialmouths Thanks for the tweet and the support Francisco!
Worob Thanks Andrew!
MarcosViladomiu followback
robert_pf Thanks for sharing the post Robert!
EugeneFarber No problem Eugene. Awesome post! I align with alot of your points.
adamtoporek Thanks for sharing the post Adam!
e_tobias really really?
yogizilla Hey Yomar! Thanks for sharing the post! Appreciate the support buddy!
DannyIny Thanks for sharing the post Danny!
AJ2000 Thanks for the tweet Eric!
inkling_media thanks for the insight. I've landed several accounts as a result of SM...for the time vs payoff factor well worth it.
Swirl_cakes great to hear. mmmm. cupcakes....
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. Source: dannybrown.me [...]
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. Source: dannybrown.me [...]
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. ("the average Facebook fan is worth $136.38.“ NOT! Source: dannybrown.me [...]
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. Source: dannybrown.me [...]
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[...] How to REALLY Measure the ROI of Social Media originally appeared on Danny Brown | Social Media Marketing Blog – The Human Side of Media and the Social Side of Marketing under a Creative Commons license. [...]
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[...] How to REALLY Measure the ROI of Social Media originally appeared on Danny Brown | Social Media Marketing Blog – The Human Side of Media and the Social Side of Marketing under a Creative Commons license. [...]
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. Source: dannybrown.me [...]
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[...] How to REALLY Measure the ROI of Social Media As the question of ROI in social media continues to be asked, Eugene Farber shows how to REALLY measure social media ROI. Source: dannybrown.me [...]
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