Measuring Return on Social Media Investment

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It was 7 A.M in the early morning, your boss (or customer) called to ask you where his or her $120,000 annual investment on social media investment has gone to? What is his or her return on investment?

“How do I measure the return on my social media investment? A significant 87% of marketers want to know how to measure their return on investment for social media activities. This question has been top of mind for marketers for years. Clearly very few marketers have figured this one out.” (source: Social Media Examiner 2013).

Measuring return on investment for social media activities is one common challenge for CMOs, marketers and agencies today. Understanding the ROI is important so that businesses can carefully allocate their marketing budget to more efficient and effective strategies.

The Challenge

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Whether marketing (or social media marketing) had driven business revenue or not, is a ‘chicken and egg question’ since the time marketing concept was introduced. Prospects who eventually became customers may or may not be influenced by the social media marketing activities. They might be influenced by the salesperson, the location of the business, or other traditional activities. Sometimes, customers are also influenced by a combination of marketing activities other than just social media. So, how do we measure the ROI for social media investment then?

Success Rate

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The success rate of any social media marketing campaign is determined by three factors. Firstly, the type of social media network used for the type of business we’re in. Not all social network are for all kinds of businesses. For B2B businesses, creating a Facebook marketing campaign may not be recommended in order to get the right type of consumers for the business. Perhaps, Linkedin is a better choice.

Facebook marketing is better for B2C businesses instead. In my country (Singapore), Twitter is not commonly used by the matured consumers; younger consumers, between the age of 18 and 24, are more active on Twitter or Instagram than on Facebook. If your B2C businesses has a limited marketing budget and targets a younger consumer audience, by considering your strategies on Twitter or Instagram, may be a better idea.

The second factor that determines the success rate of the social media marketing campaign is how the marketer manages the campaign. There are some one-sided articles about businesses losing on social media marketing, most of them blame the social network for the business losses.

However, in my opinion, there is nothing wrong with the social network if it has the right audience of consumer to target. One reason why some social media campaign failed is because the marketers are using the wrong methods to get the consumers. The aim of social media marketing is to create a community of like minded consumers and educate them with custom content to like your brand or share your content with their family and friends. By applying push advertising methods on social media such as promotions, discounts, giveaways and contests, may scare away the loyal customers. Only a few marketers who get it, are able to improve their business revenue with social media.

The third factor is more commonly seen especially in small businesses with limited marketing budgets. It is the lack of commitment on social media marketing from the business owners. Many small business owners had not yet started marketing on social media because they feel that marketing method is something new. Investing on something new may be risky for them, so they rather not get started. Even if the business owners have very experienced social media marketers, they will still not invest more money on social media. Such lack of commitment from the business owners, will therefore, resulted in slow return on investment for social media marketing.

Before and After

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By tuning towards a high success rate for our social media marketing campaign, we also have to prepare the “Before” figures; these are the past revenue figures before social media marketing is introduced. After 6 months to a year of the campaign, take note of the new revenue figures – the “After” figures. If there is a significant increase in the revenue, it will mean that the investment on social media marketing is effective.

Sometimes, no matter how prepared you are in terms of measuring the ROI from social media marketing, people can still feedback to the management that the increase in revenue may not entirely from social media marketing. Perhaps, there is better training among the sales colleagues or there is an ongoing mass TV or print advertising and many other reasons. Therefore, return over time (R.O.T) will be a better and more effective marketing method than ROI.

Return Over Time vs Return on Investment

The “return” in R.O.T refers to the number of leads, prospects, call-in, online enquiries and walk in customers generated from your social media marketing campaign. This does not refer to the revenue amount.

If there is an increase in the return over time value, it means that your social media marketing campaign is successful as it drives more consumers to your businesses. Compare to ROI, R.O.T gives a better marketing picture to the business. If R.O.T is high but ROI is low, it is probably due to other factors such as poor salesmanship, customer service, product quality and so on. Do check out my previous article on Return over Time for more details.

Social media marketing is one of the best marketing methods today. With better management of the campaign, social media can bring about better revenue for the businesses. It is modern day word of mouth marketing tool for consumers. Use it wisely and your business can greatly benefit from it. Hence, if your bosses ask you about the ROI for social media marketing again, tell them confidently that everything is in good hands.