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?

Facebook costs

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?

Thank You EconomyGary 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.

Eugene FarberAbout 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

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171 comments
April Wilson
April Wilson

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

April Wilson
April Wilson

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

ab2bc
ab2bc

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...

ab2bc
ab2bc

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...

PRcommt
PRcommt

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.

PRcommt
PRcommt

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.

countUP
countUP

@tometweetme Danke, gebe ich gerne zurück! :-) #ff

Steveology
Steveology

@eugenefarber It is a great post, well researched. Was my pleasure to read and share. Have a great weekend.

EugeneFarber
EugeneFarber

@Steveology Thanks for sharing my post Steve!

DebWeinstein
DebWeinstein

@EugeneFarber a pleasure, #nicetomeetyou and to make a new friend. Happy #FF!

tometweetme
tometweetme

@countUP Hallo, grüße from #Vienna -> schönen Freitag -> Andreas #Folllower

tometweetme
tometweetme

@countUP Hallo, grüße from #Vienna -> schönen Freitag -> Andreas #Folllower

SharelOmer
SharelOmer

@Yogizilla Amazing mention pal :) i really appreciate it :) thx a lot & thx for @DannyBrown for this great post..

Sharel_Omer
Sharel_Omer

@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 :)

susie_parker
susie_parker

@DebWeinstein @eugenefarber @dannybrown Love this.

Twylah
Twylah

@Yogizilla you are too much!! TY!! Much appreciated. :))

Yogizilla
Yogizilla

@DannyBrown Absolutely! People tend to ask the elusive ROI questions because there are other root concerns at work. Typically, the real question is, "Am I spending my time wisely?" Conversion funnels, CRM, and lead nurturing are all things that can be enhanced by social media greatly.. But, even with today's technology, it's not always clear what activity correlates with the results we really want. For me, the easy answer is this: spend as much time as possible without cutting into your "me time" or cutting into the quality of your core offerings. If you spread yourself thin, you're no good to anyone! I find that the processes here become a lot more natural when you do it for the right reasons. Try helping people, showing that you care, and sharing valuable content and the rest will come.. Many will argue against the 'ol "sharing of your secret sauce" approach but it seems to be working rather well for some. The beautiful thing is that, like a telephone, we all have different ways of using social media and, if it works for you, keep on going.. Don't let the experts guilt you into anything... Unless you're missing something, then you can knock on Danny or Eugene's door.. I won't turn you down either. 8)

Yogizilla
Yogizilla

@EugeneFarber@seanEclarkgaryvee Well, this is where setting up active listening stations helps you gather more data points and feedback from your audience and casual visitors alike. Correlating the data is still partly a guessing game but, if you focus more on specific activities as you campaign, you'll start to see how the activities churn out results. It's much like SEO which, ironically, folks tend to put into that bucket of "stuff that I don't really need to do because it's mostly a waste of time" along with social media. Hey, you know it's true.. Their loss. ;o)

Yogizilla
Yogizilla

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
Yogizilla

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)

Yogizilla
Yogizilla

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)

Yogizilla
Yogizilla

@EugeneFarber You got it, bro! Remember: when I come up to NYC next time, we got to hang and have some brewskies. 8)

EugeneFarber
EugeneFarber

@Yogizilla Thanks for the mention and all the support Yomar! You're awesome!

Steveology
Steveology

@EugeneFarber It is a great post, well researched. Was my pleasure to read and share. Have a great weekend.

Sharel_Omer
Sharel_Omer

@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 :)

Yogizilla
Yogizilla

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
Yogizilla

@EugeneFarber You got it, bro! Remember: when I come up to NYC next time, we got to hang and have some brewskies. 8)

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