A Simple Way to Calculate Social Media Return on Investment

social media how toSocial media return on investment (ROI) is simply a measurement of efficiency. It’s a lot of things to a lot of people: “return on inactivity,” “return on innovation” and “return on engagement.”

However, in a stricter sense, social media ROI is defined as a measure of the efficiency of a social media marketing campaign. This definition might sound complicated, but in reality, it’s quite simple.

What Does ROI Really Mean?

Let’s backtrack a bit.

We’ve all heard what “ROI” stands for, but what’s less understood is the actual meaning and the importance of ROI.

In the financial world, ROI is used to measure the financial efficiency of an investment. ROI is based on the financial formula:

ROI = (return – investment) / investment %.

increase results

Increase social media ROI.

This means that if you increase your return while keeping your investment the same, then you increase your ROI. This is good. If you decrease your return while keeping your investment the same, then the ROI goes down. That’s bad. A high ROI is better than a low ROI.

Because the ROI formula uses only two inputs – the return and the investment – the ROI formula is an easy way to measure and compare marketing campaigns. A marketing campaign with a high ROI is considered better and more efficient than a marketing campaign with a lower ROI.

It’s important to understand that ROI measures the efficiency of an investment because then you also understand that ROI cannot be defined using alternative definitions. “Return on inactivity” does not help you measure the efficiency of your campaign.

Social Media ROI Uses The Return And The Investment

Now, all we need is to take our social media return (the amount of value that we got from our social media campaign) and our social media investment (the amount of money that we invested in our social media campaign) and run it through the financial ROI formula.

Social media ROI = (SM return – SM investment) / SM investment %.

Simple, right? Not so fast. The social media investment is clearly defined, but how do you define the social media return and how do you attach a dollar value to the return? We need to answer both questions before we can calculate the social media ROI.

Social Media Return Is The Return On Your Social Media Goals

The peculiar feature of the social media return is that you can define it to be essentially anything you want it to be!

Brian Solis from the Altimeter Group puts it even more succinctly in his article ROI Doesn’t Stand for Return on Ignorance: “Everything starts with an end in mind.”

In reality, social media return is the value that you derive from your social media campaign. For instance, if the goal of your social media campaign is to drive sales, then your social media return is the number of sales that you can attribute to your social media campaign.

Instead of sales, say your goal is to drive consumer insights. In this case, your social media return is the quantity and quality of the consumer insights you get from your fans and followers.

A third example of social media return is brand awareness. If your goal is to drive awareness of your brand, then your social media return is brand awareness.

I could give many more examples, but the point is that social media return is the value that you derive from social media based on the goals of your campaign. (Note that the number of followers, fans, Likes and comments are not social media campaign goals.)

Quantifying Social Media Return

After we have defined our social media return, we need to quantify the social media return into dollars and cents. This is difficult because you need to look at each type of social media return and develop a method for dollar quantification.

For instance, looking strictly at sales, we can quantify the social media return by looking at “last touch” sales, or we can use sales forecasting techniques or use unique identifiers such as coupon codes.

Quantifying consumer insights is harder and requires different techniques to estimate value.

dart board

Hard estimation is critical.

One commonly used technique is to compare the quantity and quality of consumer insights from offline focus groups to consumer insights from your social media campaign.

The idea is that you know the value of consumer insights from offline focus groups based on their cost. By comparing the quantity and quality of consumer insights from both channels, you arrive at a reasonable estimate of the value of consumer insights from your social media campaign.

Brand awareness requires yet another method. In April 2010, social media analytics company Vitrue made quite a stir when they stated that according to their research, the average Facebook fan is estimated to be worth $3.60. Vitrue looked at the average number of messages each fan received and then compared this number to what it would cost to purchase impressions to send the same number of messages to each fan.

Use Social Media ROI To Compare Apples To Apples

After estimating your return and your investment, you use the ROI formula to calculate your social media ROI.

Remember, ROI is a measurement of efficiency, so having calculated the ROI of your social media campaign, you use the ROI number to compare to other social media campaigns and also your TV, print, radio and other campaigns.

ROI is possibly the most powerful tool in your marketing toolbox. This sentiment is demonstrated in Amy Porterfield’s post, Study Reveals Top 6 Social Media Goals for 2011, where she correctly points out that according to the Altimeter Group, 48.3% of all corporate social strategists will have social media ROI as their highest focus in 2011.

ROI is a very powerful weapon in your marketing arsenal.

What do you think? What methods do you use to measure social media ROI? Leave your comments in the box below.

All photos from iStockPhoto.

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About the Author, Dag Holmboe

Dag Holmboe is the CEO of Klurig Analytics. Klurig develops methodologies and applications to analyze and estimate the return value and ROI of social media campaigns for brands and agencies. Other posts by »




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  • http://twitter.com/zunnurain ZunNurain Khalid

    This is really good informational material posted today. The topic is synced with the very much needed and discussed topics. Being Social Media and Internet marketing service provider, me at UltraSpectra have used the free version of this tool and found it well engaging. It sure showed results and a very clearer picture of what actually is happening on internet and social media. The tool is simple to understand and makes your life really easy in terms of customer/client results.

    The generated results from Klurig Analytics ROI tool gave me an insight to work in the right direction. Overall this tool is really good to be used for knowing the current ROI for social media.

  • http://www.profitblog.com/ Conde

    This is the interesting topic,  I greatly appreciate this info, and  I’m actually getting started on. now I know
    what does ROI really mean. How to use it, how to calculate it. and how to involve in a particular what matters most. this is full of of info here. Thank you so much. Great work!.

  • Dag Holmboe

    Thanks for the comments, ZunNurain. You are correct, it is important to look further into social media ROI to get a better understanding of the costs and returns, including the ROI. Based on a clearer financial picture, social media agencies communicate better with their clients.

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  • http://daviddoolin.com/ Dave Doolin

    Dag, with all due respect, ROI stated as you have stated it here is trivial.  

    The crux is calculating the return, and that’s something I see very few people write about at the small business level.And if people aren’t 1. tracking the time they are spending with social media and 2. assigning a monetary value to that time, they don’t know what their investment is either.

  • http://www.internetmarketingsource.net Sam Beamond

    Here’s something i learned recently about Social Media ROI. Social Media ROI can be defined as knowing that your company will still be in business in the next 5 years. I couldn’t agree more!

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  • Dag Holmboe

    Hi Dave, thanks for the comment.

    I don’t think it is trivial at all. When you run a business, you need to understand your cost, your return and your ROI. If you don’t understand those, chances are that you will not be around long or perhaps not as profitable as you otherwise could be. It is the same thing with social media.

    Since the early days of social media, companies have tried different strategies to generate a return. Because we’ve been in unchartered waters, it has mostly been trial and errors. 

    I think you are seeing a shift in the market place where some of these strategies are becoming cornerstones of successful social media marketing. Because we are moving into more solid ground, we are also learning how to better define different types of returns and we are also learning how to estimate the value of these returns. It is a learning curve but we are getting there because we have to. 

    In addition, yes, I am aware that some businesses are being run more loose than others. :-)

    Again, Dave, thanks for your comments.

  • Dag Holmboe

    :-)  Good comment, Sam.

    However, it is tough to use that definition of ROI as a means of comparing the efficiency of different marketing campaigns.   

  • http://www.facebook.com/zhaseeb Zain Haseeb

    I think you make a good point, the way I like to look at it is ROO, or what is the return on the objectives you defined before you started investing time and effort into social media. Another thing many marketers overlook is that by using social media as a hub of engagement you can reduce your print, radio and TV spend considerably when using social media effectively. For example if you run a weekly ad in the paper for a coupon to your business, but now you require people to visit your facebook page and ‘like’ your business in order to unlock the coupon you are inherently telling people that your facebook page is where they need to come for a coupon or deal. Over a few months people will stop needed to see your newspaper ad and you can reduce your spend on that marketing vehicle because people will directly come to your facebook page and engage with your business there. In order to make social media engaging and reduce outside advertising costs you need to drive traffic from all your offline channels for a period of time.

    Zain Haseeb
    Maiden Media Group
    http://maidenmedia.com

  • Dag Holmboe

    Hello, Zain.  Thanks for a good comment.

    In your example, you state that you are moving from a larger spend on newspaper ads to a lesser spend on newspaper ads.  You are accomplishing the cost savings while at the same time not sacrificing your return. 

    In essence what you are doing is that you are lowering your investment while keeping your returns steady, thus you are increasing your ROI. So, if you kept track of your cost in the two situations, you can now compare the two campaigns, apples-to-apples, and get quantifiable results back.

    If you are looking to move all or parts of your audience from traditional to social media, it takes time and there is also a cost associated with that.

    Good luck with your social marketing strategy.  It sounds like it is working well for you.

  • http://pervarakapadiaatmoney.blogspot.com/ Pervara Kapadia

    Hi Dag, Thanks for your article. It no doubt is touching the most critical factor for us today. Business are still not knowing how to go about this.

    Regards
    Pervara

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  • http://www.conetactivity.com Rajesh Butta

    You have still not explained how to calculate the social media ROI. Most businesses are looking for more business through social media campaign. Point is how do one quantify the delta business generated through online marketing. Are there any pointers on this or any best practices being followed across the globe?

  • Dag Holmboe

    As I mentioned in a previous reply, I think we are seeing a shift where businesses are learning different ways to estimate the return.  The article proposes that there are a number of different ways that you can estimate the return on social media.  Then, based on the return and the investment, you can calculate the social media ROI.

  • Dag Holmboe

    Hi Rajesh.  There are ways to estimate the social media return, however that requires a more in-depth answer.  Feel free to contact me directly.  My contact information is on our blog at kluriganalytics.com.

    Thanks and I look forward hearing from you.

  • http://www.tmrdirect.com/ Spencer Powell

    We measure our success in terms of leads and customers.  We use some tracking software that allows us to see exactly how many visits we receive from Facebook, Twitter, LinkedIn, etc.  We then track how many of these visitors actually filled out a form on our site and became a lead.

    This process allows us to exactly see what kind of ROI we are getting from our social media efforts.  

  • Dag Holmboe

    Hi Spencer, thanks for the comment.

    Your social media goal is to generate leads and customers.  You estimate your social media return by assigning some dollar value to each lead and customer.  Using the return, together with your social media cost, you can now calculate the ROI of your campaign. 

    I would be interested in hearing more how this process is working for you.

  • http://www.internetmarketingsource.net Sam Beamond

     True, i just love the quote.

  • Dag Holmboe

    It is a good one.  I think there are a few others; What is the ROI on your phone?  Gary Vaynerchuk had “what’s the ROI on your mother?” 

  • Dale

    I always love this discussion. But for a business person/client, I also have to remind them of the variables. What I mean is that they need to take into account their effectiveness in social media itself. As they continue to improve on their knowledge and ability to be effective with social media, they should be able to expect better returns. This is one of those hidden variables that don’t always make it an apples to apples comparison.

  • http://felixrelationshipmarketing.com/ Juan Felix

    Hi Dag. Thanks for writing about this very interesting topic.

    IMO Dave Doolin mentions an important resource when it comes to ROI.

    People!

    As business owner I know the importance of high financial returns on investment to survive.
    However, when it comes to Social Media ROI, I miss some points in your article.

    I mean things like more job satisfaction, more satisfied customers, better products, increase of customer loyalty. An improvement of these points, IMO, is definitely an increase in social media ROI.

    Just think about the cost of recruiting new employees to replace dissatisfied employees who left. The cost of replacing bad products that nobody wants, because companies produce without listening to customers. The costs of acquiring new customers because existing customers do not feel heard. All this can be prevented with a successful social media strategy.

    That’s what I would call social media ROI.What are your thoughts on this?

  • Dag Holmboe

    Hi Juan, thanks for the comment and, yes, it is a fun topic to write.  We have focused the last few years almost exclusively on the financial part of social media.

    I hear you loud and clear.  You are correct, there are some aspects of social media that are next to impossible to put a value on.  We know instinctively that a happy customer is more valueable than an unhappy customer but what is the delta as measured in dollars? There are ways to estimate the value by using metrics, and polls and surveys but it is still hard.So, in this case, you can do two things; first, you can do what most of us does, which is to not use the value. The drawback with this technique is, that in fact, you just assigned it a value of $0, meaning you did use the value. The second option is to estimate some value that seem to make sense. Even though it goes against what we normally do, the estimate might be closer to the actual value than $0.This is an area where today, it is more of an art than a science. Nevertheless, there are a number of other areas within the social media space where a value can be accurately calculate or reasonably approximated.Again, good comment, Juan.

  • Dag Holmboe

    Dale, you are correct.  As in everything else, there is a learning curve.  In this particular case, because social media is something fairly new, we all are learning strategies and tactics that might, might not work. However, I think we are seeing a shift where there will be stricter requirements on the return, cost and ultimately the social media ROI.

    Thanks for your comment, Dale.

  • http://blog.socialmediahq.com/ Nick Robinson

    Great post. As an analytics junkie, I would say that you are absolutely correct. Our job as consultants is to guide our clients on 1. Collecting the appropriate data tied to each business goal 2. choosing the right software for their needs.

    Also I want to add that I am super excited about seeing the social CRM market develop, as we will be able to report the value of social media connected prospects/customers vs. non social media connected prospects/customers.

  • http://felixrelationshipmarketing.com/ Juan Felix

    Thanks Dag for hearing me and responding. 

  • Balqees Almubarak

    If ROI is one of the measurements to the effciency of social media, then what are other points that should also be calculated or at least found? 

  • Gerardo

     AWSOME!!! Thank you!! 
    Cheers,
    G&K 
    http://VintageVictory.com
    London

  • Dag Holmboe

    Hi Nick, thanks for the nice comment.  

    Your point 1 jives directly with the article.  You need to know your business goals to a) collect the appropriate data, b) analyze the data, and c) report on the findings as they relate to the business goals.

    Good software helps.  Good people help even more :-)

    There are a number of research stating that connected consumers are X% more likely to buy and they spend $Y more and so on. The actual numbers vary in different markets, geo, demographics but you should be able to see the same, assuming you collect the appropriate data.

    Good luck with your work.  Feel free to drop me a line to let me know how it goes.  As you say, this is really interesting work.

  • Dag Holmboe

    Hi Balqees – good question. 

    Because social media is such a data-heavy space, you run the risk of spending all day collecting and scrubbing data. 

    Thus, you first need to figure out your business goals.  Then, based on stated goals, you need to collect the data that can help you a) achieve your goals, and b) measure to see if you are achieving your goals. As you can see, there is a slight difference between a) and b).

  • Dag Holmboe

    Thanks for a good comment.  Have a good weekend in London, Gerardo. 

  • Balqees Almubarak

    Thanks a lot for the explanation 

  • Dag Holmboe

    You welcome, Balqees.  If you get a chance, drop me a line on how you make out.  You raised a really good question that is really tough to answer without digging deep into your business goals.  

    Have a good weekend.

  • http://daviddoolin.com/ Dave Doolin

    Rajesh, I’ve been off Twitter and Facebook both since last October, and I’m staying off until I see hard numbers linking tweets to increasing bank balances. Not saying it can’t be done, just that I haven’t seen it down at the micro-scale where I live.  And I read a lot of blogs. I’m sure (some) big corporations have some of this figured out.

    Neal Rodriguez just put out a video on Google Analytic’s Multi-funnel channels. I’m about to sign up for the beta right now. I won’t spam the thread with links, you can dig it all out of your favorite search engine. 

  • http://edgysocialmedia.com Tara Husband

    DAG!

    We went through your amazing ways to measure social media a few weeks ago. How is your project going?  I’m still trying to wrap my head around it!  Your article is fantastic! I’m VERY glad to know who the GO TO GUY is for this type of ROI.   
    Best – Tara

  • http://www.online-business-virtual-assistant.com/ Shilpi Roy – Virtual Assistant

    Great post  and loved reading it and thanks for the share!!!

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  • http://www.manausa.com/ Joe Manausa, MBA

    “how do you define the social media return and how do you attach a dollar value to the return?” I have evolved on ROI over the years. It used to be hits then visits then uniques … none of which provide “R” in ROI. I now measure money through sales. Simple, but it did take me a while :) .

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  • Dag Holmboe

    Hello Tara,  

    Good to hear from you.  Thanks for the comments about the article.

     

  • Dag Holmboe

    Hi Joe, thanks for your comment.

    It is simple, as long as the goal of your social media campaign is sales, then your social media return is the value of sales. Obviously, you need to ensure that the dollar value that you attach to your sales can be fairly attributed to your social media campaign.

    Nevertheless, if the goal of your social media campaign is consumer insights, then you shouldn’t use sales as your social media return.  Instead, your social media return has to be the value that you assign to the consumer insights.

    We’ve defined 15 – 20 different types of social media returns; all of them depends on your particular social media goals.

    Again, thanks for the comment.

  • Martha Giffen

    I’m just one little small biz woman but I calculate mine with leads and sales.  This is an interesting post with great comments leading to much thinking on my part!  

  • Davidse123

     Stimulating thoughts Dag.Whether it is cost of SM to sales, or profit or other measure. A monetary value has to be put on both all expensive and all returns. This may not be simple in some case but calculating things like cost of all SM effort reducing it by cost of non direct sales return ( IE.market research) may help. An example might be: if you were provided with enough feedback to eliminate the cost of a focus group, you could deduct the cost of that focus group from your expensive since it is a real dollar saving. Then you could measure the return on the balance.

  • Robert

     As I suspected, you are defining ROI to suit social media before applying it.This is cart before the horse material and does nothing other than emphasise that there is no ‘viable’ ROI measurement of social media activity in the conventional commercial sense, one of its massive weaknesses. Businesses primarily sell, not communicate. Return on investment is exactly that, no point in saying its something else just so that it fits in with your aspirations for social media. I am in the hotels and travel business, ROI means the same to me now as it did 10, 20 years ago.

  • http://profiles.yahoo.com/u/7BYVVSKNV3YKYXKALAXH3Q5HSE Eli

    What do you mean by “return on inactivity”? Also, what would you say are the goals of the health care industry (specifically a nursing home) when putting Social Media Marketing to good use? Thanks.

  • http://www.firealarmmarketing.com Bob Mannal

    Dag,

     I don’t think that ROI, which is a financial tool, should be used to as a metric for social media.  I posted a blog about this last month here:  http://firealarmmarketing.com/2011/05/05/measuring-marketing-by-roi-is-bs/.

    I would hate to be part of a management team that was trying to make a decision based on ROIs and comparing a milling machine in a factory with some social media objective.  A better metric, tying social media to sales (which is the ultimate goal) needs to be found.

    Bob

  • Dag Holmboe

    Hi Martha, thanks for the comment.  Most business, specially SMBs, calculate the return based on leads and sales. 

    Because Social Media gives you so much additional value outside of leads and sales, it might be a good idea to include those additional values in order to ascertain a potentially more accurate return value and thus ROI. Nevertheless, you should only use returns as they pertain to your individual business.

  • Dag Holmboe

    Davidse123, you nailed it!

    Value of social media can be describes both as increased return, eg raise top line and bottom line, and decreased costs, eg lower expenses and raise bottom line.  Either way, you increase your social media ROI.  

    This is also not an ‘all or nothing’ effort.  If you can estimate that the value of your social media feedback is about half of the value from off-line focus group, that is still a win for you. The win either goes into the return column or the cost-savings column.  Both raise the bottom line. 

  • Dag Holmboe

    Hi Robert.  You launch very good thought provoking comments.

    At the very top of the article, I define ROI as: (return-investment)/investment %.  This is the true financial formula to calculate the Return on Investment. The “return on investment” is used as a measure of efficiency of an investment.  Using the ROI, you can compare the efficiency of two or more investments.  The investment with a higher ROI is said to be more efficient than an investment with a lower ROI.  I know that I did not have to tell you that but I wanted to show my thoughts.

    So, lets be clear – I did not invent those definitions.  These definitions have been around since people started to do business with each other, long before 10 or 20 years ago.  

    The gist of the article is not to try to redefine ROI.  Instead, the gist is quite the opposite; to ensure that when we use “ROI”, we use it in its financial sense.  The article also gives examples of how we can tease out value from Social Media and how this value can be use as Social Media Return (measured in dollars) to calculate the Social Media ROI, as defined by the aforementioned ROI formula.

    Robert, I think, based on your last sentence that we are actually saying the same thing.

    Thanks for your comment.  I would welcome additional comments from you.

  • Dag Holmboe

    Hi Eli,

    With respect to “return on inactivity”; there has been many attempts to redefine ROI (return on investment) to mean something different.  I simply used “return on inactivity” as an example of redefinition.  ”Return on innovation” are “return on engagement” are other examples of redefinitions.

    The redefinitions probably have their place in some context but not as a financial measurement.  I have stated that the ROI is used as a measure of the efficiency of an investment, or in our case, as a measure of efficiency of a marketing campaign. When we use ROI as a “return on something else”, then we are missing the whole point with ROI and ROI becomes in effect useless.

    To your question about social media returns in health care industry; you need to establish your goals for your social media campaign.  Examples of goals could be sales, leads, brand awareness and consumer feedback.  There are probably additional goals but these are a few examples.

    Let me know what goals you have in mind.  It is an interesting prospect.

  • Dag Holmboe

    Dave, I don’t know exactly how hard your numbers have to be but there is a fair amount of research that have shown that Social Media generates value for your business. Gary Vaynerchuk’s work is a good example.  Also, feel free to contact me directly if you want.

  • Dag Holmboe

    Hi Bob,

    I welcome your comment.  I know that folks are using different definitions for a variety of things and therefore it is critical keep the definitions crisp.

    The ROI is not a social media metric. I consider ‘fans’, ‘followers’, ‘clicks’ and so on as social media metrics.  The Altimeter Group (http://www.web-strategist.com/blog/2010/12/13/framework-the-social-media-roi-pyramid/) has built a nice “ROI pyramid” discussing types of measurements and also the audience of said measurements.

    I don’t fully understand your comment about ROI with respect to a milling machine and a social media objective. If you are saying that you can’t compare milling machines with a social media campaign, then I would argue that using the Return and the ROI, you compare them.  However, I see this discussion as an out-lier and I rather not go down that road.

    I think we both agree that sales is probably the most common way of measuring the Return of a social media campaign.  The article points out that there are more ways than sales that can determine the total return from a social media campaign.

    By the way, I took a quick peek at your web site.  You and your team have done a really good job with the web site.

  • Dag Holmboe

     Juan, I have read some of your comments on other threads and you consistently make really good points. It is a great read.  Thanks.

  • http://twitter.com/roidetectr ROI Detective

    Social Media has opened up new ways to talk with customers but the fundamentals of business have not changed. ROI is all about finding the best ways to spend the businesses limited budget, tools that can prove a positive return on investment will last. A CEO cares about whether that Facebook Campaign is a better use of funds than a billboard campaign or larger call center. 

    Any tool a business uses is either to 1) increase sales or 2) reduce expenses. Given the “relationship” nature of Social Media it seems much easier to to apply the latter form as it’s easier to track. It’s straight forward to figure out how many customer’s you’ve served via twitter and the costs you’ve saved not having to serve them using traditional (and more expensive) ways. 

    But at the end of the day it comes down (or will eventually come down to) how Social Media effects the bottom line. 

  • Dag Holmboe

    Hello Sam Spade :-)

    You are correct.  In running a business, you need to understand the Return, Cost and ROI. There is no difference with Social Media.

    Social media is new, uncharted and exciting.  Nevertheless, social media is just another marketing channel in your total marketing mix.  

    Depending on your business goals; increasing the return and/or the ROI, or decreasing the cost, you emphasize actions that drives the business goals.  At the end of the day, it is the bottom line that counts.

    Fans, clicks and other metrics are indicators of success or failure as means to an end, but they are not the end of themselves.  The bottom line is the end.

    Good comment.

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  • http://twitter.com/JPUngurian JohnPaul Ungurian

     excellent article, very interesting how R.O.I for social media is viewed differently by different businesses / companies, i suppose that ultimately it is the client that is using social media and what R.O.I they are looking for that determines the success! 

  • fredchannel

    Great post Dag.
    I wish more companies and consultants dedicated more time to understand the difference between financial and non-financial outcomes. Loads of companies are under the impression that ROI only means more sales/revenue, when asking the right questions it could turn out not being the case.
    We wrote a good post back in December, sharing a few simple tips on how to keep a track of your ROI http://bit.ly/dP5AyO

  • Dag Holmboe

    Thanks JohnPaul for the comment.  You are right that ultimately, you need to set goals and then measure against those goals and then, if possible, assign a value to those goals and you get the value of your return. Also, again,  you’re right, it is different for different businesses, products, consumer demographics and so on.

    Because Social Media is still fairly new, it is really a lot of fun playing in this part of Social Media. 

  • Dag Holmboe

     Thanks for your comment, Fred.  It is all about those goals, how to measure against those goals, and how to tease out a value based on those goals.  And you’re correct, even though sales is usually paramount, there can be a tremendous value in other areas of Social Media.  

    Good article you wrote, by the way.

  • Dag Holmboe

    Thanks to you for a nice comment.  It is very much appreciated. 

    Thanks, 
    Dag 

  • Dag Holmboe

    Hello Conde, thank you very much for your comment.  I appreciate it.

    Good luck moving forward.  This is a very interesting area. 

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  • http://ImpartialGeek.com David Foster

    Funny…was just having a conversation yesterday with a friend of mine who has a PhD in statistics and trying to figure out how you could more accurately measure this. I have never, from the beginning of my company launch in April of 2010, been worried about it. I just knew that if I was making more than I was spending on ads, I was doing good…

    I now, however, after a year of data would like to dig in and see where I could actually cut spending to maybe be a bit o=more accurate with measuring things, because I know a lot of the money I spent, I most likely could have saved. But I was more worried about my return on relationships…meaning what did I get out of the time I spent engaging my fans/followers etc and so far it is off the charts seeing as how 1/4 of our customers came from ads…and we spent $76,000 so far where the rest came from social proof…people seeing someone who had liked our page and came over to do the same…

    So how do you measure it? Well, in my opinion I think you should just totally focus on what gives your fans/followers/customers a great experience, and the rest seems to fall into place…because when you focus too much on the money, you lose sight of what social sites can really do…and that is help you build real, lasting relationships!

  • Stevens

    Dag, very nice article about ROI. I’ve been reading posts like this for the past 6 months because 2011 is the year companies are looking to define  the ROI of their SM campaigns.At least this is what the experts are saying:) I do have one question though. Everyone says like you do as well that Likes, Followers, Comments and Fans is not a campaign goal? I’ve been in retail and with the same brand for 30 years now so I understand making money is the bottom line. I’ve also seen our FB fans grow from 25,000 to over 50,000 and Twitter followers from 15,000 to over 35,000 in the last 6 months. All this growth has occurred organically and I’ve got to believe this is growing our bottom line accordingly. If Vitrue was right at $3.60 per fan and we are gaining about 1000 fans a week, well then…….
    I also believe like David before me said in giving our customers, fans and followers a great experience with good value and content from all our sales and SM channels that the rest will fall into place.

  • propagandahouse

     Great post Dag – and some good points. The thing I find most challenging is adding a dollar quantification to different forms of return. You mentioned the example of using the cost of offline insights to quantify online insights – many of the businesses I deal with are startups though, so its hard to get this kind of info. Any tips for these instances?

    Also, does anyone know of a good list of SM metrics to consider when developing goals for your campaign?

    Cheers
    Dan

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  • Dag Holmboe

    Hi David,

    It depends on your goals.  Normally, a business is run on the foundation of return, investment and ROI.  If you have the luxury to not having to worry about return, then you can focus on giving your fans a great experience.  

    For most of us, we don’t have that luxury, thus we need to focus on what brings in return. Having said that, we can often bring in more return by giving our fans a great experience.  Also, as you point out, social media is great for building lasting relationships.

    The article points to a few different ways where we can estimate a return; in sales, in consumer feedback and in support call prevention.  There are a number of additional ways that the return can be estimated. 

    Drop me a line if you want to talk more about this.  It is really an interesting subject.

  • Dag Holmboe

    Hi Stevens,

    I agree with David as well.  More often than not, build a lasting relationship with your customers and everything else falls in place.  Our ROI methodology simply attempts to put a value on that relationship through sales (very important) and other return channels like consumer feedback and support call savings (note that every campaign does not include all three).

    Vitrue did a good estimate in April, 2010 with the $3.60/fan.  However, they used an average. The actual number depends on a lot of things; your customers’ demographics, your products and services, your pricing, your customers’ geographics etc.

    Also, remember that fans, likes, comments etc are good indicators of the success of a campaign but they don’t tell you the whole story.  Also, the exec management in a company is not interested in those numbers. Instead, they are interested in the return, investment and the ROI.  For instance, look at the Altimeter ROI pyramid.  http://www.web-strategist.com/blog/2010/12/13/framework-the-social-media-roi-pyramid/)

    Thanks for the comment.

  • Dag Holmboe

    It is tough to estimate something if you have very little idea of what you are trying to estimate.  Our product includes 15 – 20 different types of return channels that we can estimate value.  Feel free to drop me a line if you want to talk more about this.

  • http://www.infinitycreditsolution.com Jeremy Kean

    great article

  • http://www.infinitycreditsolution.com Jeremy Kean

    great article

  • Dag Holmboe

    Thanks, Jeremy.  I very much appreciate your comment.

  • Joe Reisinger

    Dave Doolin, I can understand and appreciate your calling Dag’s use and explanation of ROI “trivial”.  However, in order to be trivial, something has to be of little relevance.  To someone who is just starting out at getting a handle on “how to do business”, Dag’s observations are a good first step in the right direction.  With Dag’s post well digested, the reader is then equipped to move on to other matters of perhaps greater importance. 

    It is unfortunate that the American education system is so wasted on Bureaucratic Scrutiny that the tools necessary for taking care of one’s self in the realm of money and economics is never addressed.  By comparing the American education system with that of some other countries that actually do produce entrepreneurs, its clear that don’t have a “no child left behind system”.   Rather, since our schooling leaves us so under-equipped to deal with something as simple as ROI, it is really system where every student is left behind.

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  • Dag Holmboe

    Dave, thanks for the link.  I looked at your post and I failed to understand how you calculate the ROI. 

  • Dag Holmboe

    Joe, thanks for the comment.  

    I understood your first paragraph and I thank you for your nice comments.  However, I missed the link between Social Media ROI and the American education system.

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  • http://twitter.com/NabeelAdeni Nabeel K. Adeni

    Hi Dag,
    This is a wonderful article and gives a lot of insight into something as critical as ROI. People who’re new to social media definitely want to see what kind of results they can get on investment. This pretty much answers the question in a’ crystal clear’ manner.

  • David Broom

    Hi Dag,

    I am working as a research assistant with Glasgow Caledonian University and a web design company in Glasgow, Scotland.  We are researching how SMEs calculate the ROI of their social media efforts.

    Would you like me to send you the finished article once we’ve published it?

    David

  • http://www.tweettwins.co.nz Jenny Wilmshurst

    Dag, I appreciate the way you explain Social Media ROI here. The market place is quite confused about the measurement tools, how to measure Social Media ROI and to justify it internally and externally to small businnss owners, Boards and Senior Executives.

    There are quite a number of non financial ROI that can be used.  Having hte financial ROI with so many return channels is superb.

    When I was trying to find a way to show Social Media ROI for a Social Media proposal I found Dag’s Social Media ROI tool to be the absolute godsend. So much so that I became Dag’s NZ product partner. Jenny Wilmshurst http://www.tweettwins.com www.tweetwins.co.nz

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  • http://www.brightcube.ca/ Dave Gallant

    Great article Dag. 

    To be honest, I find this challenging. It’s much easier to measure and prove the ROI on a social media ad campaign designed to increase membership.(ex: Facebook page “Likes”, or site signups) . It’s numbers based.

    The challenge is being able to properly show an organization what percentage of an engaged audience (which was acquired through the campaign) converts to revenue, and then at what point this engaged audience will begin to convert. Yes, we can show the increase in engagement, but showing the conversion percentage on engagement is a different story.

    Another challenge is the ability to make an accurate ballpark prediction on this conversion percentage, so that you get the “buy-in” from the organization to move forward. 

    At the end of the day, the real bottom line goal of any organization is revenue earned or saved. Whether it’s through customer service, improved customer experience, etc, they are always looking at the bottomline. Yes, we can have KPI’s, but at some point the monetary value needs to be shown.

    Any suggestions on how this could be measured accurately?

  • http://www.tweettwins.co.nz Jenny Wilmshurst

    Dave, I reckon that if Dag showed you a demo you’d be much closer to discovering the answers to your questions.

  • http://www.seamlessmedia.co.uk Ian Thatcher

    Hi Sam, I do apologies but i’m not entirely sure I understand that statement. Are you saying that if we invest our marketing budget and resource in running campaigns on social media channels now, our business is guaranteed to still be in trading in 5 years time? 

  • http://twitter.com/DanielleLatta Danielle Latta

    Great article! You are abolutely right about the value of social media being
    dependent on each organization’s goals. While there is not a
    “one-size-fits-all” formula for measuring ROI in Social Media, new
    social media monitoring platforms have simplified the process of determining
    this value. Through the automated collection of quantitative and qualitative data,
    these platforms can provide customized reports and metrics specific to each
    client’s needs. Social media managers should carefully weigh all the available
    offerings and experiment with trial periods to select the platform that is
    right for their business. For a more comprehensive look at the challenges
    involved in measuring ROI of social media, reviews on the thought leadership
    about the topic and practical recommendations on how to achieve stronger ROI
    from your social initiatives, check out the latest white paper released by
    MutualMind: http://bit.ly/mmproi

    Socially charmed,

    Danielle

    Brand Evangelist @MutualMind:twitter 

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  • David Gillham

    Hi Dag.

    I enjoyed your article. However, your major claim, that ROI for social media is possible, is sadly left wallowing by the section entitled ‘Quantifying Social Media Return’. It seems that ROI in as you have defined it ‘return – investment’ is only possible within the sales category. Perhaps the second argument as to how whatever ‘consumer insights’ actually is (no definition given?) was at least plausible, but could have done with a little more… fleshing out. However, and most importantly, the third part about brand equity, is not argued for or explained AT ALL. I think that the real power of social media is in creating vast amounts (potentially) of brand equity, but it is surely impossible to somehow quantify brand equity? If it is possible, then why have you given me no reason to believe it is? All you say is “Vitrue looked at the average number of messages each fan received and then compared this number to what it would cost to purchase impressions to send the same number of messages to each fan.” but frankly i think that Vitrues so called method is questionable to say the least (thus it caused a stir?) and that although this method may or may not work, there are surely a myriad ways of going about quantifying this very human, very social thing, called brand equity Marx would point this quantification out as blatant alienation, and to see why I would suggest the following http://www.stanford.edu/~davies/Symbsys100-Spring0708/Marx-Commodity-Fetishism.pdf ) In conclusion, your article was compelling, yet lacked the substance to convince me that what you hold to be true, that is “A Simple Way to Calculate Social Media Return on Investment”, actually is possible at all.

  • David Gillham








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