ROI Model for Social Media

Hi All! Welcome Back….

So I’ve been thinking about these two questions:
What’s the ROI of social media?
How can the value of social media be measured?

Let’s start with the basics: Plain and simple, return on investment is a financial ratio that can be stated thusly:

ROI = Net Benefit ÷ Cost of Achieving that Benefit

When it comes to ROI conversations with C-level execs, we’d better focus on inserting hard dollars into the equation above, or we’ll lose all credibility. But admittedly, hard-dollar justifications are difficult with social media.

“Productivity investments are notoriously difficult to justify. Social productivity investments are perhaps even more difficult,” says Chuck Hollis, an EMC Corp. (NYSE: EMC) VP and champion of EMCOne, a major social media effort inside EMC.

Social media practitioners are likely to find that they’re going to have to go with gut feelings and forget about traditional ROI justification. That means real ROI analysis will only be able to come about after investments in a project are sunk and learning occurs.

But that doesn’t mean we can’t introduce the notion of value in social media investment discussions; I’m saying just keep it out of ROI calculations. And despite the “fuzziness” of the ROI for many social-media investments, it doesn’t mean value can’t be measured and tracked.

In traditional media, we pay for the creation of content, and a buyer places that content in various media outlets. Once the content is distributed, that spend is gone. The return on investment is often very fuzzy. However, people have grown comfortable with traditional media over the years. I’ve seen multimillion-dollar print and television advertising initiatives get the green light because CXOs understood the media — and I’ve seen $10,000 social-media efforts scratched because execs didn’t get it.

Value in social media can absolutely be measured; and in fact, with social media, it’s actually easier to measure value. The key is setting clear objectives that can be measured, getting buy-in for these goals, and tracking progress closely.

Social media is not necessarily inexpensive, but you also don’t need a big up-front investment, either. Your audience is helping you build the content, so you’re not paying directly for its development, and you’re also not paying for a media placement. The goal is to build relationships with your audience (internal or external). The content created by the audience becomes a “conversation” that creates advocacy for your brand and results in knowledge sharing or direct revenue, thereby creating value.

The measurement of this value depends on your objectives. Clearly, you can measure things like traffic, page views, sign-ups, content quality, conversions, page rank, etc. In the case of EMC, for instance, it’s all about productivity and employee participation.

The challenge to communicate value may be greatest for startup firms whose basic mission is to do something that parts with tradition. One such company, Wikinvest, a wiki site for investment information and tools, has made a goal to excel in at least one of the key measurements cited above in order to increase valuation. 

“In many ways, we view ROI the same way as traditional firms. We look at near- and long-term revenue, costs, and risks. The difference is we’re presented with new and different opportunities that might not exist for traditional companies,” says Mike Sha, co-founder of Wikinvest.

In your firm too, communicating the value of social media might require different measurements based on different goals. It comes down to value. Social media may not be part of traditional ROI calculations yet, but its worth can and should be measured. Perhaps one starting point might be to ask the question, “What’s the return on not participating?”




2 thoughts on “ROI Model for Social Media

  1. I think some types of social media can be tracked to a definity ROI others can’t. For example you can track the number of clicks coming in from social (networking, bookmarking, or media) sites and if you host social media, you can track the number of unique hits to those pages that were reached by a search engine seeker (found you through those pages).

    And you can track the conversion rates of both.

    Other results from the social media might be harder to track.

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