social media roi

The hype around social media is intense: eight new people are coming online a minute and there are predictions that by 2016 the internet economy will be worth $4.2 trillion. There have been calls for executives to get online and talk to customers, suppliers, employees. (That’s in their “spare time”, right?)

Meanwhile, those same leaders are scrounging for every cent of savings. So the question remains: is there any way to calculate the return on investment (ROI) in social media versus other channels?

While there are numerous metrics promising that, the short and disappointing answer is no – or at least, not definitively. The difficulty of distinguishing the buying context – such as via ecommerce advertising, or social media recommendations – means there is not yet a conclusive measure for the contribution of social engagement overall.

However, there are some effective ways to make an evaluation.

The most advanced tools capture the non-financial value of lead indicators, such as online relationships.

Since word-of-mouth recommendations are one of the cheapest and most effective forms of marketing, getting some background on how online relationships influence the purchasing decisions of consumers is a useful for business leaders.

In this case, the return on investment of social media could be measured by the cost saving from trying to obtain the same data by other means, such as focus groups, which are expensive, or surveys, which can be inaccurate.

For example, a recent report by Forrester Research says an effective social media marketing scorecard considers metrics from four different perspectives:

Financial: Has revenue or profit increased or costs decreased?

Brand: Have consumer attitudes about the brand improved?

Risk management: Is the organisation better prepared to note and respond to attacks or problems that affect reputation?

Digital: Has the company enhanced its digital assets?

Forrester quotes computer company Dell Outlet’s Twitter account as having “generated millions for Dell”.

Dell claims it generates sales from its Twitter accounts by “posting offers and responding to questions”, although the details are sketchy. Dell’s in-house marketing manager, Stephanie Nelson, wrote that the company had earned $2 million in two years – between 2007-2009 – when people followed links from the Twitter site to the Dell outlet site. She says it also created interest in new products, although there is no measure of the return from this interest in the form of sales.

Using a different measure, chip maker Intel says its blog for partners, Channel Voice, has decreased costs by eliminating the need for expensive in-person events.

Procter & Gamble used media mix modeling –which analyses sales data to determine the effectiveness of the marketing mix – to demonstrate that the community of teenage girl-orientated advice site, BeingGirl.com, is several times more effective at driving sales of its feminine hygiene products that its television ads.

The results underscore the value of social relationships as indicators of future sales, even though the exact engagement-to-sale trajectory is not mapped.

The dilemma for leaders is that these social relationships are powerful, whether or not their company chooses to participate in them.

From the start of the internet, people began sharing shopping experiences and recommending for or against brands just like they do in conversation.

The worldwide decline in trust towards institutions meant people stopped believing what companies had to say about themselves some decades ago.

Instead, the rise of peer-to-peer trust (which is still increasing) meant recommendations from friends started having a broader reach than in the past. A 2011 IBM study shows consumers creating as much information every two days as they did in the period from the dawn of civilisation to 2003!

Those recommendations were being made in social networks where corporates were noticeably absent – at least initially.

Some parts of the whole

A simple search will provide companies with detailed consumer sentiment and trend data that allows them to track what keywords are used to find products and which of those lead to sales. Strategies can be refined accordingly.

Data mining is another option: it allows businesses to compare comments on products by different providers and aggregate these with ratings and reviews to better understand what customers want and how their competitors are faring.

Location-based data also allows businesses to pinpoint where conversations about their products are happening and identify potential new markets; growth in these areas would provide further financial measures.

Another powerful tool is data-driven web optimisation, which allows data to be tested, analysed and measured.

For example, market research company eMarketer improved its subscription conversion rate by 53% by removing the price from the description after reviewing data that showed reader preferences. It is possible to measure what it costs to get this benefit against achieving the same results by conventional means.

Online feedback on products also allows companies to quickly refine their offering or approach.

One financial services company increased lead generation by 40% though better design and by delivering content that focused on the benefits of the product while reducing non-essential information as a result of information it had received directly by engaging customers across multiple platforms.

In all these examples the cost of acquiring data by other techniques including using large teams to cold-call clients can be expensive. The cost saving could be used as part of the ROI measure of the project.

Top-line benefits

As far as campaigns are concerned it’s possible track the journey of a customer from click to click, although this tells us about the influence of a specific campaign rather that the factors that influenced the lead-up to a decision.

However, we do know that engaged communities lead to sales down the line.

American health and nutrition retail company GNC is an example of a store that built online communities interested in health and provided experts to answer questions at no cost, and without directly chasing sales.

The initiative created a “halo effect” of positive sentiment that ultimately helped anchor people to the brand and converted to sales over time.

Because B2B is immersed in the same social and mobile ecosystem of customers, suppliers and competitors, the need to create positive impressions online is just as critical, perhaps more so since 60% of the buying circle is over before a prospect makes contact.

B2B companies have much to gain by providing value to prospects and they can do this by generating useful content such as ebooks. Offers that prospects can act on is an effective way to generate leads and that can be measured.

And while existing B2Bs have made a slower transition into the social space than consumer brands, given the rise in participation globally, their involvement is inevitable.

Peer-to-peer conversations influence behaviour and in an environment in which these relationships are more trusted than anything else, businesses must take notice of them even in the absence of a perfect measure of ROI for all aspects of social media.

THIS ARTICLE FIRST APPEARED IN: Leading Company –