Social media’s return on investment: fact or fiction?

Posted on by Anthony Fensom

How can the return on social media be calculated?

The boom in social media has led many to attempt developing a formula for return on investment (ROI) which can be presented to decision makers.

How simple it would be to have an equation that sums up the return from the time and money spent. This is perhaps similar to the advertising value equivalency used by some in public relations (but not endorsed by industry bodies such as the Public Relations Institute of Australia).

Among the various formulae currently developed on social media ROI are the following:

* Social Media ROI = Net gains as a result of social media = (Tangible related revenue + Estimated intangible related revenue – cost of social media)/(Cost of social media)
(http://socialmediatoday.com/mrryanconnors/1011241/finally-unlocked-social-media-roi-formula)

* User lifetime value (U) = (Gross distribution per customer) X Σ (yearly retention rate)^i / (1+ yearly discount rate)^i – (Retention cost per customer per year) X Σ (yearly retention rate)^p / (1+ yearly discount rate)^p+0.5

(http://www.wikihow.com/Measure-Social-Media-ROI)

* Social Media ROI = (Return – Investment)/Investment %
(http://www.socialmediaexaminer.com/how-to-estimate-your-social-media-return-on-investment/)

In short, there are as many formulae as financial types could ever imagine, with perhaps equal validity.

In a recent presentation to Interactive Minds in Brisbane, Jess Whittaker of BuzzNumbers suggested first establishing social goals (eg. 10,000 Facebook likes), measuring these against KPIs (eg. 5% more leads to sales) and assessing current measurements (eg. call centre response time).

Online activity is trackable, such as number of Likes, retweets or YouTube views, and ROI is simply the measure of success as outlined by the organisation.

For example, a billboard advertising campaign to promote a new product might cost $100,000 for a target of 1 million impressions, with an ROI of 10 cents per view ($100,000 divided by 1 million views).

In contrast, a Facebook campaign encouraging use of an existing service might cost $5,000 for artwork and banner ads, targeting 100,000 Facebook likes, with an ROI of 5 cents per ‘Like’ ($5,000/100,000).

In customer service, the traditional KPI might be reduced time to resolve a query, with the measure of success being reduced call time by 2 minutes on average, at a cost of $50,000. The ROI might be $50,000 through reduced headcount requirement amounting to $100,000 in wages (i.e. $100,000 savings – $50,000 cost = $50,000).

By employing Twitter for customer service, an organisation might target reducing negative sentiment by 5 per cent, with the cost being a monitoring tool and staff hours spent responding. The ROI in this case could be the reduced cost of enquiry response (e.g. 50 cents online versus $12.50 from the call centre), in addition to the ability to up-sell products.

Whittaker suggested benchmarking, tracking and reporting “until people start to listen to you”; linking the results with the established KPIs; and observing, listening and learning from customers and competitors.

But according to Bank of Queensland’s Jenny Devine, the ROI of social media is simple: “In five year’s time, those that do this will be more successful than those who don’t”.

At BWH, we heartily agree.

Talk to us about how social media can be used successfully in public relations. Contact us via email at info@bwh.com.au, or telephone (07) 3368 2355.

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