Measuring ROI in Social Media

According to a recent survey of CMOs by The CMO Survey Institute, though the Social media spending by companies is set to increase by a 128% to 24% of the marketing budget in the next five years, its impact is still difficult to prove. As per the research done in 2014 through feedback from 351 marketing leaders, only 15% have been able to prove a quantitative impact. 40% have a good sense of qualitative impact, whereas 45% haven’t been able to prove any impact yet. Thus, as Social Media is set to become a huge part of the marketing spend, identifying various ways to calculate the ROI is becoming highly important.

However, before we look at the different ways to measure Social Media ROI, it is important to understand the business objective we are trying to achieve by using Social Media. The definition of ROI would change accordingly, as the definition of Success changes.

Apart from this, it is also important to define what platforms are suitable to achieve those business objectives. Each platform has its own audience, language and customs. Companies need to understand how people are communicating over each platform and then tailor the strategy to fit the platform. The ROI calculations will also vary accordingly.

Traditionally, marketing ROI is measured as:

Return on Investment (%) = (Net profit / Marketing Costs) × 100.

The Profit mentioned above could be a definitive quantitative measure such as Revenue – Cost, as is used traditionally. If we are able to directly quantify the sales revenue generated by the social media campaign, then it is quite straight forward to calculate the ROI using the above formula.

Or in other cases, based on the business objective we are trying to achieve, it could just be an increase in the likes, comments, and overall buzz about the brand in social media.

Various social media metrics are used, which can be calculated by the company, or by using Social Media Analytics tools such as Google Analytics, Sales Force, Social Mention, Klout, Youtube Analytics, etc.

Some of the metrics popularly used are:

  • Hits/ Page Views (Reach)
  • Repeat Visits
  • Bounce Rate
  • Sales
  • Buzz indicators like TAT (Talking About That)
  • Net Promoter Score
  • Number of followers/ friends
  • Number of Likes
  • Number of Comments
  • Lead conversion rate
  • Share of Voice
  • Engagement Level

Through use of the various metrics, companies need to track the Social media success and preferably associate it to a quantitative benefit value. The ROI can thus be judged in different ways.

It is important to note that Social Media Strategy is not static. Also, the use of calculating ROI is not just to justify the value of the social media campaigns, but also to identify areas of improvement, and to better it over time. Due to the short lifecycle of social media campaigns, a failing campaign should be changed and improved as soon as possible. ROI Goals need to be reviewed and fine-tuned periodically, and the Social Media and Overall Marketing Strategy should be modified to fit those goals.

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