‘’The ROI of Social Media is that Your business will still exist in 5 years’’ –
Increasing cost pressures coupled with intense competition for customer wallet share have put further pressure on marketing budgets. A recession or a slowdown brings down the hammer on marketing budgets and it is the first one to come on the radar for rigorous monitoring. Assumption being that such a practice leads to a more justifiable use of the scare resource and a firm therefore tries to extract the maximum out of every dollar spent. This is a regular story with conventional media and same applies for its counterpart social media as well. There is always this debate as to how to calculate the returns of investment for social media and hence justify the spending.
You may consider sales figures in conventional –assuming that the campaign has had the incremental sales effect- to calculate ROI, but how do you go about doing the same for social media, considering the campaign could be running parallel to a conventional campaign and hence the chances of incremental sales attribution could be really difficult. How to consider the likes, the followers or the comments made, hits on your website etc. are some of the pertinent questions which demand attention to arrive at a conclusion.
Is the ROI Calculation Method Really Different for the two?
In reality however the method is no different from the conventional media ROI calculation; cost and revenue hold the fort for social media as well. The difference being in terms of the primary revenue driver for social media compared to a conventional one and the cost/revenue items considered. Social media is primarily engagement driven and works towards increasing your revenue. A campaign may not turn out to be a successful one, if you are not able to gather the required amount of engagement, which in turn would lead to lower revenue. In social media you increase the ROI by improving the revenue and not by reducing the cost. You may get lower prices for social media initiatives compared to the conventional one, but that shouldn’t be the decision criterion. You are better off sticking to conventional media if costs are the pain point.
It’s really about the Thought Process:
Social Media requires an engagement driven thought process and not a cost reduction one. You might end up damaging your brand’s reputation or spending exorbitantly high, if low costs are a primary driver for you and not engagement. Apart from the revenue driver aspect, the cost/revenue items change for Social Media ROI calculation and rest of the process remains the same. For instance, if you take number of ‘customers who visited the showroom’ as a factor to calculate revenue in conventional media, you would have its parallel as ‘average number of Facebook interactions’ in social media. Following example to illustrate the point further:
|ROI Calculation – Social V/S Conventional Media|
|Conventional Media||Social Media|
|Costs||(In Rs)||Costs||(In Rs)|
|Salary of the Marketing Team||125000||Salary of the Social Media Marketing Team (Monthly, in Rs)||20000||125000|
|Ad Cost on TV-prime TV||300000||Cost of Shipping||500||120000|
|Print Ad cost||60000||Cost of Packaging per 5 tablets||300||14400|
|Point of Purchase Material Cost||70000||storage Cost per tablet and other costs||100||24000|
|Total Cost||555000||Total Cost||283400|
|Revenue Items||Revenue Items|
|No. of New Inquiries||1000||Hits on the website||4000|
|No of leads converted||200||Average Percentage of Facebook interactions (of total website hits)||50%||2000|
|Price of the Tablet||4000||average percentage of repeat visitors of the above||30%||600|
|Total Revenue||800000||average percentage of visitors who bought the product online (only repeat visitors, first time visitors didn’t purchase)||40%||240|
|ROI Calculation =(Revenue-Cost)/Investment||44%||Tablet Price||4000|
|ROI Calculation =(Revenue-Cost)/Investment||239%|
As is clearly evident, the calculation method is very similar and the items considered are in fact a parallel to conventional media. The real difference is in terms of the engagement, which is being depicted by the percentage of visitors who visited the website after having the interaction at Facebook. It’s significant to note that the revenue is a direct function of this value. Revenues risk plunging if interactions move south and hence the engagement levels go down.
A Six Point framework to help you demystify the ROI calculation for social media:
- Set Targets: The first obviously is target setting. What is that you wish to measure? Your revenue and costs figures would finally be a product of the targets set. Targets should be set in line with the concept of user engagement. Measure engagement, which is the factor driving revenue. Monitor metrics such as Number of clicks on the Facebook page, No. of comments made, tweets, re tweets on the topic, how many users accessed website using link provided on Facebook etc.
- Track Conversions: Second step would be to track the metrics set. Online tools like Google analytics come in handy while tracking these metrics. Regular monitoring of these conversions allows changes in the overall campaign strategy if at all you feel the need to do so. ‘Website Traffic’ is an example of a metric.
- Assign Monetary Value to each metric: You could either use historical data for a similar campaign run in the past or use a guesstimate. For instance, average cost per click, average percentage of repeat visitors who bought the product online etc.
- Measure Benefits by Channel: how many visitors and from which channel- Facebook/Twitter etc. – is the key question here. This would be useful if you are having a multi-channel strategy. For instance, data from you tube, twitter, Facebook etc.
- Determine Total Costs: You add up all the total costs. This is very similar to the conventional media method. Only the items differ
- Analyze results and Improve: You may feel the need to redesign websites, links, posts etc. to generate more traffic on the site or attract more comments. You would get this insight post data analysis
ROI calculation in Social Media then is a matter of understanding the similarity rather than the difference. The only difference is in terms of the primary ROI driver in both the cases. For conventional media, it is awareness and then action. For social media, it is engagement and then action. Social Media revenue is primarily engagement driven and work by improving the return part of the equation rather than the cost. Firms and Managers need to understand this basic aspect and need to include this understanding while making ROI calculations for the same. As firms allot bigger portion of their marketing budge to social media, more and more mangers and firms could face this issue and a little effort towards understanding the workings might be the difference between a failed and a successful social media campaign.