The Social Media ROI Conundrum

As the year closes out, everyone (including me) will be looking back on the year and looking ahead to 2012 and stating their trends and predictions of social media. There is absolutely no doubt that the most common topic will be social media ROI.

So let’s get the reality on the table. Social media does provide a great value to organizations that take a well thought strategic approach and integrate it with other business and marketing programs. Measuring social media return on investment is very difficult to perform because of the inability to hardcode or hardwire social activities to a purchase. But there is no doubt socialization of a brand leads to increased sales. You want some data to back this up?

Bain and Company declared that “Customers who engage with companies over social media are more loyal and they spend up to 40 percent more with those companies than other customers” in their study “Putting Social Media to Work.” Just yesterday I listened to an interview with Wendy Clark, senior vice president of integrated marketing communications and capabilities at Coca-Cola Inc. where she stated that an independent group verified that Coca-Cola fans on Facebook (36 million +) were twice as likely to consume coke and 10 times more likely to purchase. Are these not results you want to see for your company?

When used correctly, social media is powerful because it sparks earned media and/or user movements. The earned media and user actions are stronger than other brand marketing activities because it is a voice coming from a “trusted agent.” Well planned social media endeavors are apt to cause word-of-mouth. It is the equivalent of asking a friend a good place to grab some dinner. Is that not a lead that yields a sale? But how do you track that scenario … pretty difficult.

Getting people interested, engaged, and loyal to brands are some of the great outcomes of social media. Word of mouth, another byproduct of social media, is the most powerful lead generation source. All of these things lead to sales. To use a hockey analogy, if sales is the goal, social media is the assist. The NHL does score players 1 point for goals and 1 point for assists when calculating individual scoring statistics. And yes, awareness, consideration, loyalty, and advocacy are all assists of sales and can all be measured.

As I’ve mentioned a number of times, here are some examples of how you can measure each of the assists to sales within a social media paradigm:

Awareness – look at digital assets you do not own (blogs, portals, other tweeter accounts, etc.) and count the number of mentions of your brand and URL mentions of your site. Use a social media monitoring tool.

Consideration – look onsite and measure the number of visits and pageviews to your site. Use Google Analytics.

Loyalty – derive an equation that includes number or fans, followers, comments, interacts, subscriptions, and return visits to your site. Use Facebook, Twitter, and community analytics as well as Google Analytics to measure return visitors.

Advocacy – look on and off of your digital assets and measure referrals, mentions, positive sentiment, retweets, and reblogs. Use social media monitoring tools, and site analytics tools.

The approach I take with clients is to first baseline measurements for the four categories. Then continue to look at the measurements either week-to-week or month-to-month. Do not worry about an individual period of slippage. You are likely to see a zigzag line over time, but normalize that line. Positive results are somewhere around a 10% increase month-over-month on the normalized curve. Put all line metrics on the same chart. Do you see relationships between the lines? Are you converting those that are aware to consideration? Those considering to loyalty? Those loyal to advocate? There is likely some degree of drop off from stage to stage, but is the percentage of drop off getting better over time? Also add in a sales measurement and see if you can determine a correlation between your social media measurements and sales. I often suggest that there is a “gestation” period between social media awareness and consideration to sales. There is a definite lag of these parameters. Do this type of measurement over a rolling 12 month period. Learn to modify your social programs based on measured results. If you implement this correctly and have a strategic approach to social media, execute with the right tactics, and modify your social program based on measured results, you will have a winning social media program that can be quantitatively justified.

Back to ROI … the technical definition of ROI is (sales – investment) / (investment). It is that sales component in the equation that makes it difficult to measure social media ROI. This is for two reasons: 1) social is not a channel for direct sales. While some use it successfully for sales, overall it is not the best use of social. 2) It is extremely difficult to tag a sale with a social media tracker.

As we roll into 2012 and social media is finally well accepted as a very strong brand marketing initiative, you must show measured value for your efforts. I am certain that somewhere along the line someone is going to (rightfully so) ask you for social media ROI. You now have the background to answer this question. It is now up to you to put a measurement tracking and reporting procedure into your social media program. Ready to deliver measurable results?

Make It Happen!
Social Steve

24 Comments

Filed under brand communication, brand marketing, measuring social media, social media, social media marketing, social media ROI, Social Steve, socialmedia, SocialSteve

24 responses to “The Social Media ROI Conundrum

  1. Great Info Steve. I look forward to reading your blog posts as they are always filled with insightful information. I actually recommended your blog as being one of the best in the social media market. So Cheers to you for “making it happen”

  2. Steve another great insight making sense of being social, so many do miss the focus of being social and direct everything to sales rather than relationships. Which as we know last longer than a sale and get you far more assists than pucks and fists in the face🙂

  3. Great post. But remember, ROI is not all about money. Social media is about building new relationships, generating word of mouth marketing, and strengthening brand loyalty with your customers – can you really put a price on that?🙂

  4. Solid piece Steve. I’ll only add here that brand sponsored social media units need to be cross-talking much more with their direct response counterpoint units, both across their online and maybe even more importantly offline teams.
    From a direct response perspective getting arms around ROI accountability just ins’t that hard.
    One critical question to ask here is why these internal conversations are not happening across brand platform units and their agencies.
    If they were structuring next level response programs wouldn’t be an issue.
    Right?

  5. Good piece. As a newcomer to social media, I have been struggling with answering the questions of how to justify investment (whether it be time or money) as the ROI is so difficult to track. You’re right that effective use of social media comes with a measurement component. It is only by measurement that we can even have a glimpse at what the value may be of our social media presence. I would also credit smesocial with the point that the relationships we build for our brands through social media also carry their own value and may not result in sales for months, years, or even decades.

    • Thanks True Car Guys. Appreciate your joining the conversation. You say you are just beginning with social media, but you are doing something that many ignore – engaging. Kudos to you and best, steve

      • I’m interested in the work done by Gary Vaynerchuk, David Siteman, Amy Porterfield and yourself. I’m definitely a novice in this new arena but it’s nice to be humbled and awoken all at once. I’ve been nothing but a car-salesman for the past 3-4 years and I feel like a part of me just awoke recently. Thanks for giving new comers like myself encouragement and good practices to follow. Best to you as well, RJ (TCG)

  6. Thanks for sharing your thoughts with us in 2011 Steve! Enjoyed reading every single one of your articles. Keep up the good work in 2012! Enjoy the holiday season and all the best for 2012!

  7. Very good article Steve. Having successfully monetized social media for one of my clients, I agree that sales alone is not the ultimate measure of a positive ROI. Sales is certainly important and if you are able to track sales, then those numbers provide a great indicator of how successful your social media strategy can be. However, looking only at sales is very short sighted and does not look at the overall value of social media.

    I think it is important to set out Key Performance Indicators at the outset of any SM campaign and then measure and track those through time. Sales can certainly be one of them, as well as the measurement points you list in your post: awareness, consideration, loyalty and advocacy.

    In the end, however, the true measure of success is engagement. True engagement will lead to all of the goals mentioned above and will result in the long term type of relationship every company wants from their customers and prospects.

    Have a great holiday season and the best of luck in 2012!

  8. Pat Blakey

    Steve – that was a very insightful piece. It illustrates that creating awareness, education and a two-way conversation with the customer is always the best method, even if it is not immediately measurable. In B2B marketing, the sales cycle is longer that B2C as often the price of the products and services offered is much higher as well. B2C marketing can afford quicker sales cycles and more expeditious brand loyalty because the sales cycle, product price and risk of the buying decision is much lower. In both types of marketing, setting the stage for community, two-way dialogues and relationships is at the heart of social media. It is not easy to immediately measure, however it is much more impactful for a long-term branding and customer retention strategy.

  9. Hi Steve –
    Great article. The question I still have is what’s the incrementality of social.
    “Customers who engage with companies over social media are more loyal and they spend up to 40 percent more with those companies than other customers” Were these folks already very loyal customers, spending more, & more likely to be drawn into social?

    • Good question. There is a bit of “loyal customers spend more with brands” by the mere nature that they are already loyal. But social media aims to make those not loyal yet, well, loyal as well as retaining loyalty already achieved. This comes from continuous relationship building so there is some incremental loyalty from social. Social then works to create advocates (word of mouth). This is also incremental. Also, with regards to measuring incremental, I recommended adding sales parameters to the “graph” along with the social parameters so there can be some correlation. Granted social is not an isolated input to sales success (same of any marketing effort), but you will see some correlation.

      Hope this helps,
      Steve

  10. Steve, thanks for sharing your thoughts and inviting to to share mine. We have heard (and read) that marketers are having difficulty measuring the results of their social efforts. At Moontoast, we see social as being a great opportunity for low cost engagement, lead generation, and sales (yes, sales), each of which is highly measurable and controllable. Soon (Q1) the layering of game mechanics (or Game Commerce, as we call it) will provide our marketers with more tools to create engagement or to motivate virality of their campaign messages by their fans.

    We have heard the challenges of measuring ROI as well as measuring and affecting the results at individual stages within a campaign, and a lot of our work mirrors the approach you articulate above (our nomenclature is a bit different, but philosophically I believe we’re very much aligned). I look forward to reading and engaging more with you in ’12.

    jeff

  11. Marie Dominique

    great paper Steve. Any idea on where Coca cola statistics on fan likelihood to buy etc come from? Any reseach methods existing to track link between social contact and purchase intention? thanks Marie Dominique

  12. This is a great post Steve! thanks for sharing.

  13. Scott

    Very insightful article, but I am really lacking seeing any real world examples of ROI measurement and methodology to support this train of thought. Also be interesting to see how the social tracking/chart aligns with traditional marketing means such as adverts of mail shots. Ultimately if these are a tracked together, it’s possible that the company may realign their budgets in favour of social media approach if it’s effectiveness is made visible.

    Does anyone know of any good published approaches or evidence vs trad marketing that can be shared?

  14. Scott – I am not aware of someone that tracks all this data together. We at MediaWhiz (I lead the social media practice there) are tracking this, but we need more data over time.

    Thanks and best,
    Steve

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