Friday, August 1, 2008

Calculating the ROI of Social Media

A few days ago I posted on why companies aren't using social media and mentioned that there is no definitive agreed ROI model. Following on from comments by Tristan & Elliefy, I've put some thoughts together on how you measure the Return on Investment of your Socail Media activity/campaigns.

There is a certain amount of thought done on this subject already and I agree with DJ Francis post that you cannot measure the ROI of Social Media the way that existing online campaigns are tracked:

You can’t apply a Web 1.0 gestalt in a world where the audience cannot only respond, but can also generate more content than any single company
Firstly ANY customer engagment campaign needs to tie into your existing overall business and marketing plans. However, I am not aware of any plans that have the aims of "ignoring customers" and "losing market share" (But you never know, a lot of companies seem to excel at this on the web recently).

Secondly, it is more difficult (but not impossible) to measure the intangible parts of marketing , e.g. Word Of Mouth, etc. This ties back to my reply to Ellify, where I cover what I believe is a lack of understanding by companies of the importance of qualitative data, rather than just measuring instant gratification from quantative data.

Now, your (online) Marketing Manager should have a set of overall objectives include items like these:

  1. Increase the in-bound links to the site
    (so more people can use/subscribe to the site)
  2. Increase the number of site users/subscribers
    (as registered users can be measured/communicated/engaged with better)
  3. Provide better methods of engaging users
    (to become customers, premium users, brand advocates, etc.)
Now, the exact way you do this will depend upon your specific brand/products & services/users, but social media can contribute to all of these aims.


However, lets try to see what we can measure both qualitatively and quantatively...


Increased in-bound links:
Social Bookmarking can help your Search Engine Optimisation efforts by creating more in-bound links to your site. By monitoring and correctly engaging with the relevant bloggers, you can also get more traffic to your site and again further your SEO efforts.

Measure:

Increase the number of site users/subscribers (increase conversions)
This is an obvious metric that can be measured and can be reported in any analytics package. By working on the points above you can assist your efforts to get users to your sight & sign users up. Even better, by creating user forums that are open (but in a carefully managed way is rewarded when they provide further details) thay can discuss and generate further information, hopefully growing to become a community, assisting each other.

Furthermore, by using targetted news releases and campaign-identified RSS feeds (or even Widgets, if you're brave), you can provide the necessary enticement in your content to keep bringing them back.

Measure: (using analytics or available databases)
  • Unique visitors
  • New registrations
  • Member-get-member (Send to a friend) referrals
  • Forum postings - new subject
  • Forum postings - replies
  • etc.

Provide better methods of engaging users
We know that functionality such as Online Customer Reviews significantly influences purchasing decisons and that customer research and share their experiences. So don't be scared to empower your Brand Evangelists in the process.

Measure:
Now measuring engagement is the hardest I believe (and perhaps why companies shy away from it so much. However people such as Ron Shevlin, who I've listened to and respected for years now) shows how its possible to measure engagement, but that there are differences.

Measuring engagement needs to be done in the context of a firm’s strategy and it’s own theory of the customer — that is, what behaviors the firm believes constitutes an engaged customer.

Final thought:
The exact amount attributable to social media is the important figure to calculate ROI (money made divided by money spent). But be careful as each company's is different and not every investment has a direct ROI.

Or to quote Mr Shevlin again:
Marketers need to stop getting their knickers in a knot trying to boil engagement down to a single metric that relates to a web site or the online channel. It’s a descriptor of a customer’s attitudes, not a channel’s performance.
A qualitative statement if ever there was one!

Note:
Here's a great Case Study on the ROI of Social Media Campaign for SeaWorld San Antonio.

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