Skip to content

8 Steps To Demonstrate Positive Return On Investment For Social Media Marketing

November 9, 2009

Social Media Marketing ROISocial Media Marketing’s ROI (Return on Investment) has been discussed on the web in blogs and websites and comments are frequently heard such as “You can’t measure the ROI of social media marketing”  

One commentator from the Search Engine Land website says that even if you can’t measure the increase in sales or reductions in costs that are an essential element of measuring ROI there are other benefits for placing your content on the highly trafficked Social media sites such 

  • Links (sometimes 100’s and 1000’s of links)
  • Long-term traffic from linking sites
  • Improved search ranking
  • Long-tail search traffic

Because you develop these high-value links, you can easily rank prominently for targeted terms in search engines and increase your long-tail traffic which will stabilize at a much higher number than the pre-social marketing campaign numbers.

The talented Peter Kim, a former Forrester analyst, outlined a framework for measuring Social Media and said

“Although social media channels seem to be mostly qualitative in nature, user activities can be easily quantified.  Although users interact with channels in different ways, four common factors quantify social media success:  Attention, Participation, Authority, and Influence.”

Here is his framework for measuring Social Media benefits

  1. Attention.  The amount of traffic to your content for a given period of time.  Similar to the standard web metrics of site visits and page/video views.
  2. Participation.  The extent to which users engage with your content in a channel.  Think blog comments, Facebook wall posts, YouTube ratings, or widget interactions.
  3. Authority.  Ala Technorati, the inbound links to your content – like trackbacks and inbound links to a blog post or sites linking to a YouTube video.
  4. Influence.  The size of the user base subscribed to your content.  For blogs, feed or email subscribers; followers on Twitter or Friendfeed; or fans of your Facebook page.

He says that “There’s an “x-factor” that comes into play well:  sentiment”…. but a lot of CEO’s will not buy into the  sentiment game. They will still be insistent…. saying “I don’t care about these sorts of soft numbers show me the hard facts ..show me the ROI on Social Media Marketing and I will give you the budget.” It’s chicken and egg scenario all over again, so how do you approach it.

Well one way is to  one way is to propose a low cost “Proof of Concept” which will allow you to provide a low risk pilot that will provide enough evidence and show a positive “ROI” for the management to take it seriously and give Social Media Marketing a place at the marketing table.   

So where do you get the budget for social media even for a proof of concept as social media isn’t free because it

  • Needs People – Wages
  • Requires Technology – Software and Hardware
  • Takes Time – Money

You need to show a positive “Return On Investment” or ROI. In other words it needs to produce more dollars in profit than you spend on the marketing.

So what are core mangement goals and business drivers? In essence the pilot  needs to produce one of two results

  1. Improve Revenue or
  2. Reduce Costs 

or preferably both.

So you need to show that it will achieve at least one of these, this is what management will insist on rather than write a blank cheque

So you need to get a budget.. Essentially it is about proposing small reductions in marketing efforts that are experiencing low or negative ROI .. these could be as an example

  • Yellow pages print advertising budget
  • Reduction in external PR
  • Cut back in outbound call centre marketing 

 So now you have a “Social Media Marketing” budget and what are the 8 stages in of “Social Media Marketing” after you have the go ahead for the “Proof Of Concept” to help you progress beyond pilot and make it an integral part of your companies marketing armoury.

  1. Investment (Time and Money) followed by
  2. Planning
  3. Baseline measurements are taken for important indicators so trends can be shown that will support your proof of concept
  4. Measurements are taken at regular intervals to show trends to ensure you are on track and and adjustments can be made 
  5. Action (Marketing commences)
    • Blogging
    • Twitter
    • Facebook
    • LinkedIn
    • YouTube
    • Plus Optimizing all of the above
  6. Reaction by the market to the action which will produce two results in the following sequence
  7. Non-Financial Impact (also called pre-cursors to the financial impact) such as increased
    • Website visitors
    • Click throughs
    • ReTweets
    • Positive and or Negative WOM (Word Of Mouth)
    • Facebook friends
    • Twitter Followers
    • Delivered emails
    • Positive or Negative Press
    • Blog CommentsYouTube Views
  8. Financial Impact are elements like 
    • Increased sales
    • Increased average sale value
    • Reduced service centre costs

Note:  The  major hurdle along this journey will be the question “Where are the increased sales” after a few months. The answer to this is to be able to provide  analytics providing facts and figures that show the precursors to the financial impact such as

  • Website visits increasing
  • ReTweets numbers going up
  • Positive comments on the blog

as compared to your baseline measurements that you took prior to the Social Media Marketing project

So the analytics need to be in place to capture these indicators that will ensure that mangement will keep the project live so that you can produce the final evidence that there is a positive “ROI” in Social Media Marketing. You will need a 6- 12 month timeline that will allow you to show that the pre-cursors do lead to the promised positive ROI.

The figures from your analytics will show the results are trending up and are the the “Pre-cursors” to the financial results. It will take time but as a good manager knows that the positive non- financial impact will certainly lead to a positive ROI.

So how do you measure the ROI of Social Media Marketing?

Advertisements
22 Comments leave one →
  1. November 9, 2009 2:48 pm

    Jeff,
    Great post! I like the idea of a pilot program, it makes sense, and analytics are a definite must. Traffic will increase when all these social media marketing strategies you mention are in place, and traffic will produce eyes on your business through the great content you post and support you provide. Top skills must be focused on conversion of the traffic. There is definite social proof traffic increases. You are correct in mentioning that the old standard methods of advertising must be reevaluated, just for their lack of quantifiable analytics alone. I have found that some will argue it costs more to employ the necessary size team to take on all these social media marketing tasks than to simply throw ads out there and hope they stick- it is all the same gamble. Which, personally I disagree with; because once you set carefully planed social media marketing strategies and efforts in place you can forget it and scale back. A portion of the correct thinking should be analyzing the building of your brand as well, which may take a year- hopefully not- to produce enough data to calculate your ROI from social media marketing efforts.

  2. November 9, 2009 10:31 pm

    This is tricky business. I recently wrote a post (http://bit.ly/13INRH) that demonstrated how even an extremely modest social media marketing effort would have to generate $680,000 in quantifiable new revenue just to break even. That’s an ROI of 0.0%

    Facing hard numbers like these makes it easy to see why so many people prefer to stick their head in the sand and ignore the true to cost/benefit of social media programs. Whether you work under the banner of “brand equity” or “awareness” or whatever, at some point it gest back to money.

  3. November 12, 2009 1:17 pm

    Hi Jeff,

    I like your suggestions of goals for measuring the effect of social media marketing. In this exact field it is relatively easy to get quantifiable data.

    Connecting the effect of projects to bottom line value though – is a little harder. Especially when it comes to other social media activities or innovations projects.

    I have written a post on the need to make a distinction between project and effect goals when evaluating the sucess of social media activities: http://www.sofusmidtgaard.dk/measuring-the-success-of-open-innovation-and-idea-platforms/

    If you accept a “less than perfect” approach to data you would be able to link effects to $-value. Here an attemt based on setting goals for and evaluating the value of innovation projects:
    http://www.sofusmidtgaard.dk/how-does-innovation-contribute-to-the-financial-results-of-companies/

    All the best
    Sofus

  4. November 15, 2009 1:16 pm

    A truly brilliant post much-needed for any client-facing social media marketing consultant challenged on costs and ROI.

  5. November 15, 2009 3:27 pm

    @Jeff I think ROI, in regards to social media, is case-sensitive. Goals should be set before engaging in social media. It’s also important to focus on platforms that are best suited to reach those goals and not spread yourself too thin.

  6. November 24, 2009 8:37 am

    Hi Jeff, great post which will definitely be useful for corporations and enterprises. Thanks for sharing 🙂

  7. December 7, 2009 10:43 pm

    let make this question :
    ¿does the websites without selling point make revenues? , no directly but yes on a comercial universe.

  8. December 14, 2009 4:31 pm

    Great post, well researched and presented. I especially like your section on the framework for measuring social media benefits. Participation is critical, if users and of course businesses don’t engage then there will be a substantially lower ROI.

  9. January 11, 2010 12:27 am

    I ask the simple question: What’s your Return-on-Ignoring?

    One only has to read a few ‘social media horror stories’ to realize that at the very least organizations should be monitoring the social media space.

    • February 22, 2010 3:30 pm

      Great comment – let’s say your sales stayed the same, but what if you have not done any social marketing. Would your sales have tumbled? A way to test hat is to promote a single product with social marketing, building a micro-site …

      A couple of other pitfalls:

      1/ Measuring your sales or hit-rate on the website before might not be enough if you’re in a cyclical industry: an increase of sales of your XMas store near XMas is probably nothing unexpected. The question is whether your increase was A) higher than in the years before, and B) whether your market share amongst your competitors was increased as well

      2/ If you’re a larger company probably many activities are geared towards higher revenue / lower costs. The problem now is to connect your efforts directly to your activities. Maybe the sales went up because everyone else increased their price by 10cents. Maybe a major competitor went out of business. Maybe there was a product consolidation and now each of your products – including the social marketed one – gets a larger wallet share of your customers.

      3/ Also measure the internal cross-conversion rate: We know that social marketing sometimes has its own way… a couple of times we realized that our campaign was not what we expected it to be: it drove lots of people to the website, but the items they bought were actually something else. We tried to do this on purpose a couple of times – have people teasered with a lower-priced product to make them buy a higher-margined procuct – but with mixed results. I don’t think we can promise clients that we can use this strategy on any product and it will execute every time…

  10. February 21, 2010 3:45 pm

    As a small business owner and adopter of social media, at least Facebook and Linked in, I found this a very useful article. I thought there was no way to quantify the benefit of engaging in the social media whirl.
    Your article was thoughtful and technical rather than just theoretical and I appreciate that.
    I’ve made some sales because of my involvement in social media. Surprisingly I enjoy it, which is a hidden benefit. Perhaps a bit too much!

  11. Sharon permalink
    March 20, 2010 6:14 pm

    The idea of quantifying social media may sound difficult or vague at this point of time, but so were most media concepts in their infancy. A few years ago, when the internet was invented, no one thought that it would be a major source of revenue for thousands of firms or that entire businesses would based off just a single machine in some corner of the world.

    All the metrics to measure its success were developed as the idea matured. Each new concept has its own set of unique metrics that are developed based on the idea itself. E.g. the idea of “Retweets” or “Fans” or “Friends” would not make any sense without the concept of Twitter or Facebook themselves.

    This article is a step in the positive direction to determining the quantifiable results of Social Media Marketing. All marketing concepts revolve around the idea of reaching out and spreading the word to as many people as possible. It is human nature to get bored with one concept and move to newer avenues. Hence, in the history of marketing we see a trend of constant change from Gutenberg’s metal movable type to the use of the Telegraph to our modern day E-commerce. Now we find a huge bulk of the people involved in social media – more people talk to each other through Facebook than face-to-face. So, as the old adage goes “Fish where the fish are…”

    Social media marketing is all about ‘Listening first and selling second’. As with any other channels of marketing, Social media marketing comes with its own set of implications, such as identifying the correct social media channel (Youtube, facebook etc…) for different types of target audiences and also aligning end goals to the type of channel.

    Social media marketing can be measured through various metrics such number Retweets, number of blog mentions, number of friends or followers. The Non-financial and Financial impacts are clear ROI indicators. Even though social media marketing returns may not fit into currently existing metrics defined to calculate ROI. It has its own set of indicators to measure the cost saving and increased revenue for an organization. Hence I feel that the ROI of social media is as measurable as any other form of media and it is slowly but steadily gaining acceptance in professional environments.

  12. April 1, 2010 11:44 am

    Chicken & egg indeed it often is in terms of engaging senior management to buy into the SMM ‘Spiel’. Great post and well in line with our thinking put into the Social Media Marketing ROI Benchmark Study: http://bit.ly/smmroi – Calibrero & DutchmarQ would welcome anybody’s comments to this Study via Twitter at @calibrero or @phasselsmonning – thank you.

Trackbacks

  1. links for 2009-11-16 « Köszönjük, Emese!
  2. 8 Steps To Demonstrate Positive Return On Investment For Social Media Marketing « Jeffbullas’s Blog « Creative Evolution
  3. Play to play: Wie sich professionelle Social Media bezahlt macht
  4. Social Media ROI and Enterprise 2.0 « Inspired Marketing
  5. 40 Reasons Why The CEO Still Uses The Yellow Pages « Jeffbullas’s Blog
  6. Twitter: 5 Business Case Studies « Jeffbullas’s Blog
  7. 7 Key Findings On The Use of Social Media And E-Commerce: New Study « Jeffbullas’s Blog
  8. ROI and Social Networking «
  9. Social Media Marketing Photo | Top Social Media Optimization

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: