Measuring the real ROI of social media: organizations need to understand not just the volume of stuff they sell, but the social context in which they do it
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’re going to measure ROI for social media, then you must measure their impact on your business results in terms of the actual investment made.
The food service company Sodexo provides the perfect example of how to do this. Sodexo decided to try 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 ad budget because it was no longer necessary. Net return to Sodexo was US$300,000, or a net ROI of about 6,000 percent.
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 US$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 any number of 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.
There is no doubt that the past two years of economic meltdown have changed the way business does business. Whether you’re in publishing, politics, travel, television, health care, technology or almost any other industry, you’ve seen your business model change. Some of the change has come as a result of the weak economy and high unemployment; still more has come from the social media revolution that has changed forever how organizations relate to their publics.
For decades, most companies have measured success in terms of volume of activity. Sales, marketing, hiring 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 world 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. You now need to factor relationships and reputation into your metrics. We’ve known for years that organizations only do business with the permission of their publics (customers, communities, government regulators, etc.). It’s just never been as easy to take that permission away. Boycotts and bans can be started with a few keystrokes. Rather than leading to a sale, that direct mail piece or e-mail blast that used to sell a product may actually deter people from buying your product because it isn’t eco-friendly, or becomes the butt of a joke, or is linked to an unpopular cause.
Let’s be clear about another thing: Relationships are not “squishy” measures. There are tons of great data and numerous case 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.
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 stuff they sell, but the social context in which they sell it. 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 neighbor, a responsible business or just someone you like to do business with.
The bottom line, measurement-wise, is that social media require organizations to measure not just volume, dollars and cents, but also the quality and value delivered by their relationships.
So how do you calculate social media ROI? It starts with six basic steps:
- Define your goals and objectives. The first step is to sit down with all the key decision makers who are asking for ROI metrics. Get agreement on why you are launching this plan or pursuing that strategy. What is the “R” in the ROI that you are seeking to measure? In short, how will you define success?
- Define your environment, your audiences and your role in influencing them. Make sure there is a clear tie between your activities and the audience you are ultimately trying to reach. Can you connect the dots between the goal, your role and the audience? If not, you may need to change either your role or your goal.
- Define your investment. What will it cost? Be honest. Make sure you include salaries, opportunity costs and any outside costs.
- Determine your benchmarks. You need to define “normal,” or at least put your numbers in context. So either establish a benchmarking period–the last three months, for example–or measure against a previous program for which you already know the ROI.
- Select the right measurement tools and/or vendors. Note that picking a tool is the second-to-last item on this list. Chances are, most of the data you need are already in-house, either in customer service, your CRM system, your web analytics or your business intelligence system. Tell your market research department and other data warehouses in the company what you are trying to do, and see if they are already collecting the data. If not, make a list of the data you need. Ask peers on Twitter or LinkedIn for advice about vendors, and create a request for proposals to find the right supplier.
- Turn data into action. The most important part of any analysis is drawing the right conclusions. You want to determine the most or least effective strategies or tactics, so make sure you run a variety of correlations or regressions to find out what the drivers of your ROI really are.
Through all of this, you may discover that some previously untouchable programs don’t deliver the ROI that a simple Flickr photo contest or Twitter campaign can. That’s OK. The idea is to improve your programs, not to earn a gold star or justify your existence. If you continuously improve business results, you’ll earn plenty of gold stars.
A checklist for social media measurement
- Define your measures of success, key performance indicators (KPIs) and dashboard.Make a list of who influences your budget and sets your priorities. Set up a meeting of aid those people to define your measures of success.Set the agenda for the meeting, including:
- Defining all key stakeholders.
- Prioritizing those audiences.
- Defining measurable and tangible goals.
- Defining what or whom you will be benchmarking your results against.
- Defining the KPIs they want to see.
Summarize the meeting in a document that includes the KPIs that you will be reporting on and the dashboard with charts or tables that you will need to show.
Get sign-off on those KPIs and the dash board.
Based on the KPIs, make a list of the data you wilt need to report on those KPIs.
- Select a listening/monitoring tool.Make a list of the search terms (for example, companies, benchmarks, subjects, topics, issues or peer institutions) that you want to know about.Decide if your program is domestic, international or some combination of the two.Make a list of the channels you need to monitor, such as:
- Online media.
- Online versions of traditional media.
- Online-only publications.
- Social media.
- Institutional (internal) blogs.
- External blogs.
- Social networking sites (Facebook, MySpace, LinkedIn, etc.).
- Social bookmarking sites (Digg, Delicious).
- Virtual reality sites (Second Life).
Make a list of the quantitative data you will need, such as influence scores, followers and likes.
Make a list of the qualitative data you will need, such as tonality and messages.
Estimate the volume of mentions using Google News or Technorati.
Decide if you need an automated system, random sampling or manual review.
Decide whether you will be doing this work in-house or will need a measurement partner.
Create an RFP that allows you to accurately compare vendors.
- Select a web analytics and/or customer relationship management (CRM) tool:Create one or more unique URLs and landing pages so you can directly tie activities to results.Make a list of the engagement data you will need:
- Unique visitors
- Repeat visitors
- Length of time on site
Make a list of the sales/lead data you will need:
- Number of registrations
- Number of leads
- Number of qualified leads
- Number of appointments made
- Number of proposals delivered
- Number of sales
- Market share
- Value of sales
- Average profit per sale
- Cost of social media program
Talk to whomever within your organization manages the web site and collects web data to determine what data is missing.
Decide if you need any additional tools.
Create an RFP for web data collection and analysis.
- Analyze and report results:Put all relevant data into a KPI table.Look for significant failures–that is, where a program didn’t deliver.Look for exceptional successes.
Drill down into the data to determine cause and effect.
Pull the most relevant charts and data into a PowerPoint presentation. Report the results and make recommendations.
Katie Delahaye Paine is CEO and founder of KDPaine & Partners, a marketing and PR measurement consultancy, and the author of Measuring Public Relationships; The Data-Driven Communicator’s Guide to Success.