Social Media ROI Revisited: 4 Ways to Measure

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

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