the original social media agency ®
Blog

Social Media ROI Revisited: 4 Ways to Measure

Kevin Briody.
By: Kevin Briody  |   April 22, 2011  |   View Comments

It has become the great debate in social media marketing: "What's the ROI? How do you measure it?" Or more directly put: "Does it work? How can you tell?" Beyond being a hot topic for pundits to debate, social media return-on-investment (ROI) is something we address with every one of our clients on an ongoing basis.

Through all those conversations and measurement plans, we tend to employ a mix of four distinct models for measuring social media ROI: Direct, Correlated, Relative, and Proxy ROI. If you look hard enough, you'll find both avid fans and harsh critics for each model, along with a large group of people claiming only "real" ROI (the "Direct" model outlined below) is valid. The truth is, it's just not that simple, particularly when you're trying to measure social media efforts that are a single piece of a much larger integrated marketing or communications plan. Each model of social media ROI listed below might or might not be useful for any given campaign or situation.

As a wise knight once said "Choose wisely."

What follows is an introduction to each of the four models. Over the coming weeks we'll examine each model in more detail and explore examples, while touching on several related topics in measuring social media ROI. Bookmark this post, and be sure to check back for linked updates.

Direct ROI

See the expanded post: A Closer Look at Direct ROI

Consider this the ideal model, "real ROI" is the purest form. Direct ROI is where you can directly track the impact your social media activities have on increasing revenue, reducing costs, or both. On the revenue side, direct ROI can be used for social media initiatives that directly drive customers to purchase a product or service, often while passing through tracking links. Examples include pushing coupons or discount codes through channels such as Twitter or Facebook, driving early-bird event registration via an exclusive offer through a blogger outreach effort, and so on. Dell's @DellOutlet program is a well-known if slightly aged case study where social media clearly and directly resulted in millions of dollars in additional revenue.

As far as reducing costs, direct ROI for social media is often trackable for customer support and service organizations, where they can specifically measure how many fewer support calls they fielded thanks to addressing customer issues via online communities, influencer programs, and social networks. Microsoft's Most Valuable Professional (MVP) program, combined with their extensive use of support forums, blogs, and social channels, is an excellent example of a social media effort directly reducing costs for an organization.

Correlated ROI

See the expanded post on this: A Look at Correlation

When a directly trackable benefit can't be measured, correlation might be an option. Correlated ROI is a function of tracking measurable social media activities over a given time - a focused blogging effort, launch of a new community site, a Facebook campaign, etc. - and comparing it to the performance of key business or marketing metrics, such as sales volume or customer service calls, over the same period.

You're looking for statistically significant correlation between the two data sets, with an ideal of being to identify that for a given investment in social media efforts, or a given level of activity, you'll get a corresponding impact on a key business metric like sales. Just keep the dictum of "correlation does not imply causation" in mind to avoid drawing false conclusions. A potential pitfall to this approach is how difficult it might be to draw real conclusions when your social media activity is being run as part of, or at least in parallel to, a much broader integrated marketing campaign. That spike in sales that appears to be nicely correlated to a sudden rise in Facebook activity might in fact have been caused by a strong coupon code offered through a related email marketing campaign, and a bunch of excited people just happened to pile on to your Facebook page to talk about it.

With those cautions in mind, correlation can be a powerful measure of social media ROI, as noted on a recent panel at SXSW by David Witt, Global Head of Social Engagement and Brand Public Relations at Hershey’s, speaking of his time in a similar role at General Mills:

Witt noted that he has repeatedly charted online conversations and actual sales and the lines move in virtually perfect symmetry. The only stronger correlation was being on shelf. In essence, Witt said, we’re now showing strong correlations more than definitive ROI, but the numbers are very impressive. Eventually we’ll have to show hard numbers, he said, but today it’s a bit difficult to do so definitively.

Relative ROI

When direct ROI isn't practical and correlation breaks down, relative ROI might be another reasonable option to consider. This type of measurement is more common when either you have lots of simultaneous marketing efforts underway - as mentioned above - or when your sales are generated indirectly through the channel. Relative ROI is all about comparing the impact and cost-effectiveness of your social media efforts against the measurable impact of other marketing channels, such as TV, print, display, earned via PR, and so on.

For example, you might decide that generating product trials is the primary call-to-action for your overall marketing effort this quarter. To understand the relative ROI for each piece of the marketing mix, you would run various efforts while being sure to include unique tracking mechanisms for each, all driving in their own way to the product trial landing page. Then simply compare how many conversions to trials each channel generated. In that example you could also learn a lot about the overall volume of traffic and quality of visitor each tactic generated.

We recently published a useful real world social media case study comparing the relative ROI of banner ads vs. social media campaigns for driving web traffic to a client's site. It's a great working example of relative ROI.

Proxy ROI

Very often, particularly in larger companies with extremely complex sales and support channels running alongside broad integrated marketing plans, marketers will be forces to develop a metric that they feel is a reasonable proxy for financial measures of success. Proxy ROI is closely related to the ongoing debates around return on marketing investment (ROMI), which attempts to determine the long-term impact of marketing investments using metrics such as unaided brand awareness, purchase intent, customer satisfaction, Net Promoter scores, and so on.

In social media marketing you'll often run into metrics such as sentiment, share of voice, and conversation volume (buzz), which are all a form of proxy ROI. A wide range of social media campaigns and programs are very often geared specifically to affect these metrics, from blogger promotions to YouTube video series and beyond. The debates around the validity of these types of ROI measurements - or even *if* they are measures of ROI at all - are enormous and endless, however proxy ROI is a model we find growing in usage, and as such it's worth being aware of.

Upcoming Posts

Again, please bookmark this post and check back once in a while to see the growing list of follow on posts when they go live in the coming weeks. Or better yet, follow us via RSS, on Twitter, or through Facebook to get the latest updates.


Ampersand
Stay in the Know

Tell us about yourself and sign up for our weekly newsletter, Social You Should Know. You'll receive the latest social media news and insights from Jim Tobin and the Ignite Social Media team.

Chat
Comments

22 thoughts on “Social Media ROI Revisited: 4 Ways to Measure

  1. barrett rossie

    Kevin, for someone like me who isn't exactly at ease with metrics, this is very helpful. In the past, I've noticed people touting certain ROI metrics that just seem to have no context or relevance to the business problem. Better to admit the limitations, if any, and give some context -- which you've done very nicely here.

  2. Barrett Rossie

    Kevin, for someone like me who isn't exactly at ease with metrics, this is very helpful. In the past, I've noticed people touting certain ROI metrics that just seem to have no context or relevance to the business problem. Better to admit the limitations, if any, and give some context -- which you've done very nicely here.

  3. Kevin Briody

    Hi Barrett - Thanks for the comment and compliment. My goal with this post, and the rest in the series which should go up about once/week for a while, isn't to push one way to measure as better than others (too much of that floating around, I think) but rather share a broad overview of the topic with as much context as possible. I'm glad you found it helpful!

  4. Kevin Briody

    Hi Barrett - Thanks for the comment and compliment. My goal with this post, and the rest in the series which should go up about once/week for a while, isn't to push one way to measure as better than others (too much of that floating around, I think) but rather share a broad overview of the topic with as much context as possible. I'm glad you found it helpful!

  5. Nolan O'Brien

    Yes, this is very helpful, probably the best broad-stroke overview of social ROI that I've seen. I particularly find your categorization of the approaches useful. And I like how you've identified that it's the integrated nature of many social efforts that makes them difficult to measure.

  6. Nolan O'Brien

    Yes, this is very helpful, probably the best broad-stroke overview of social ROI that I've seen. I particularly find your categorization of the approaches useful. And I like how you've identified that it's the integrated nature of many social efforts that makes them difficult to measure.

  7. JasonPeck

    Great job breaking things down and making it simple to understand. Under the Direct ROI bucket (I think this is where it would fall), are you seeing many companies calculating the value of new ideas/product suggestions they are receiving from people via social media and factoring this into their returns?

  8. JasonPeck

    Great job breaking things down and making it simple to understand. Under the Direct ROI bucket (I think this is where it would fall), are you seeing many companies calculating the value of new ideas/product suggestions they are receiving from people via social media and factoring this into their returns?

  9. Kevin Briody

    Hi Jason,

    Good suggestion, I hadn't actually been looking at that. The two obvious examples from Dell and Starbucks come to mind, and I know Microsoft has done some pretty interesting experiments with this on their dev tools a while back. Worth checking out. However I'd be surprised if they have a direct ROI number - likely more of a quasi-proxy ROI (to confuse things more). For example with Starbucks, I believe the spill stoppers came from their customer community - and while very handy, I think it would be hard to quantify exactly how much money that earned or saved (if any).

    Again though, great point and it's something I'll go explore for a future post. Thanks for stopping by and for the comment!

  10. Kevin Briody

    Hi Jason,

    Good suggestion, I hadn't actually been looking at that. The two obvious examples from Dell and Starbucks come to mind, and I know Microsoft has done some pretty interesting experiments with this on their dev tools a while back. Worth checking out. However I'd be surprised if they have a direct ROI number - likely more of a quasi-proxy ROI (to confuse things more). For example with Starbucks, I believe the spill stoppers came from their customer community - and while very handy, I think it would be hard to quantify exactly how much money that earned or saved (if any).

    Again though, great point and it's something I'll go explore for a future post. Thanks for stopping by and for the comment!

  11. MCA_2

    Your site appeared to be pretty beneficial. I have already been looking through your website a lot within the last day or two and it has received an area at my favorites. thanks.
    Business Loan

  12. Anonymous

    Your site appeared to be pretty beneficial. I have already been looking through your website a lot within the last day or two and it has received an area at my favorites. thanks.
    Business Loan

  13. Brittany at Sprout Social

    Really great breakdown of the ROI categories! It's been my personal experience that a lot of companies are so focused on the direct ROI, that they totally miss the other three categories. While it's understandable, it's also nice to have posts like this one that help break things down a bit more. 

    Brittany Morse, Sprout Social (http://sproutsocial.com)

  14. Britain Loans

    This is a great post. I particularly like your emphasis on using social media as a tool for the larger business goals and not the ultimate destination of an effort. We work with clients to integrate their social media analytics with other more traditional business data. For example, tracking social media sentiment isn’t nearly as valuable as it is to track sentiment when it’s related to a new product release, a new fee introduction or campaign. We try and help clients integrate social media analytics into the context of their business and not as a stand-alone metric.

  15. Britain Loans

    This is a great post. I particularly like your emphasis on using social media as a tool for the larger business goals and not the ultimate destination of an effort. We work with clients to integrate their social media analytics with other more traditional business data. For example, tracking social media sentiment isn’t nearly as valuable as it is to track sentiment when it’s related to a new product release, a new fee introduction or campaign. We try and help clients integrate social media analytics into the context of their business and not as a stand-alone metric.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>