Let’s be clear about what we mean when we talk about measuring the real ROI of social media. Simply, ROI, or return on investment, is a profitability measure that evaluates the performance of a business by dividing net profit by net worth according to Entrepreneur.com. It can also be described as the money gained or lost on an investment relative to the amount of money invested.
Nowhere in these definitions do you see the words engagement, influence, inspiration, awareness, reach, friends, followers, hits or retweets. But if you are going to measure ROI for social media, then you must measure their impact on your business results in terms of the actual investment made.
Social Media ROI Success Stories
The food service company Sodexo provides the perfect example of how to do this. Sodexo decided to use Twitter for recruitment, investing some time and salaries (approximately US$50,000 worth) in its efforts. More than 50 Sodexo recruiters searched Twitter to find tweets about food, cooking and job searching; they then engaged those Twitter users in conversation and referred them to Sodexo’s recruitment web page.
At the end of six months, these efforts had filled enough open jobs to cancel the company’s US$350,000 Monster.com advertising budget because it was no longer necessary. Net return to Sodexo was US$300,000, or a net ROI of about 6,000 per cent.
The Humane Society of the United States has a similar story. It decided to experiment with a “Spay Day Pet Photo contest” on the photo-sharing site Flickr. If you donated US$1, you could nominate your own puppy. After six weeks, the Humane Society saw an incremental US$650,000 in donations, or a ratio of return on investment of staff time of around S$13,000 for every dollar spent. Setting up the Flickr account cost nothing.
Dell Computer uses its customer relationship management (CRM) system and Twitter account to measure direct sales from its tweets—and at one point between 2007 and mid-2009 was bringing in about US$3 million from tweeting. Dell offered Twitter-only deals and tracked inquiries about the deals through Twitter and its CRM system. Deduct the cost of salaries of Dell’s paid Twitter team and you have the ROI.
Not bad for what many have called an “immeasurable” form of marketing.
The point in these and many other social media success stories is that they clearly defined the desired return. In Sodexo’s case, the company wanted to acquire a better pool of job applicants; the Humane Society and Dell wanted increased revenue. In all cases, they realistically accounted for costs and delivered a net return.
They say the only constant is change: In business, its people called customers
There is no doubt that the past five years of economic meltdown have changed the way business do business. Whether you are in manufacturing, publishing, politics, travel, television, health care, technology or almost any other industry, you’ve seen your business model change. Some of the changes have come as a result of the weak economy and high unemployment and so on. Still more has come from and will continue to come from the social media revolution that is changing forever how organizations relate to their publics. Customers have become more important in business communication than companies have given them credit for in the past because they are determining what they hear and see. The phrase, ” the customer is king” has taken on a whole new meaning because they hold the remote (and the mouse).
Back before Social Media
For decades, most companies measured success in terms of volume of activity. Sales, marketing, recruiting and pricing decisions were all made based on how many units you sold or needed to sell. And there appeared to be a fairly straight line between marketing and sales and units sold.
Years of data informed marketers that if you spent X and reached Y million eyeballs, then Z many people would buy your product. The problem with that premise is that it doesn’t (and frankly never did) take into account the enormous, unfettered world that we used to call relationships and now call social media.
In fact, that word has always existed—before social media it was ‘word of mouth’ , and before that it was the water cooler, or the back fence, or forums or bulletin boards or all of the above. But it was uncontrollable and immeasurable, so marketers pretty much ignored it when they did their calculations.
Now, the social media phenomenon has its tentacles in every part of the marketplace and can no longer be ignored. This brings us back to the need to reconsider the definition of ROI.
The Future belongs to companies that can calculate the value of relationships
Organisation now need to factor relationships and reputation into their metrics. We’ve known for years that organizations only do business with the permission of their publics (customers, communities, government regulators, etc.).
Boycotts and bans can be started with a few words on a computer keyboard. Rather than leading to a sale, that rude rant on twitter or e-mail may actually deter people from buying your product because your company isn’t eco- friendly, or is linked to an unpopular cause or has created a bad image of your management. Let’s be clear about another thing: Relationships are not “squishy ” measures.
There are tons of great data and numerous studies that show that good relationships shorten sales cycles, speed up adoption of new products, increase efficiency, reduce turnover, lower recruitment costs, and eliminate or reduce lawsuits and legal fees—all of which add up to a better bottom line.
Customer relationships do matters
The need and ability to measure relationships are nothing new. The difference today is that it’s no longer optional. In order to survive, organizations need to understand not just the volume of products they sell, but the social context in which they sell them. Companies that try to spam their way to social media success will still sell stuff, but ultimately they will turn the market against them. Exposure is one thing, but organizations need to know whether that exposure is positioning them as a good neighbour, a responsible business or a company that customers don’t like to do business with.
The bottom line, measurement-wise, is that social media requires organizations to measure not just volume, dollars and cents, but also the quality and value delivered by their relationships.
Adapted from “Measuring the real ROI of social media” by Kate Delahaye Paine
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