Return on Investment and Social Media

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1 Connect with us. Return on Investment and Social Media Measuring your impact FLOW20.C0M Contact us Streatham Business Center1 Empire Mews, London, SW16 6AG

2 Getting Started For many, many years, using metrics like Return on Investment was the best way to measure the impact that your money was having on your business. With the growth and innovation that has been happening in social media in recent years, simply calculating something like ROI may not necessarily reflect the success that your online efforts have been yielding. This article attempts to outline the failings and limitations of the ROI metric when it comes to assessing social media while providing a number of alternatives that you can use to measure the impact of your online presence. Want to know what your Facebook and Twitter accounts are doing for you? Want to know if they could be doing more? Read on. 2

3 What is ROI? ROI, or Return on Investment, is a metric used to compare the cost of an activity with its monetary benefit. It requires that you know the amount of money put into an investment, as well as the money you gained from said investment. The general formula for calculating Return on Investment is: (money earned from investment cost of investment) / cost of investment For example, if you spent 100 on a advertisements, and made 100, then your Return on Investment works out to 9. This value is sometimes represented as a percentage, so in the above example the ROI would be 900%. 3

4 The Limitations of ROI Right off the bat, you can see that there are some issues with using this formula to measure success. The formula requires that you have exact dollar amounts for your investment and its return in order to calculate ROI. This can be hard if you own a small business and you have been putting in time instead of money. It is also challenging to attribute which sales were driven by which investment, especially when that investment comes in the form of social media. There are issues like double counting, and determining the exact source of the conversion. Many of the problems with ROI come when using these metrics to guide future investment, as there are many other variables at play. For example, if you spend only 100 on an advertisement campaign that makes you 1000, you may be tempted to then spend 1000 next year. Unfortunately, factors like saturation and the maximum number of people you can reach with a certain medium can limit you from being able to accurately predict your success. 4

5 Scale can be a limiting issue as well. Many investments are extremely profitable on the small scale, but when you start spending larger and larger amounts of money, the ROI does not grow accordingly. There are other issues to think about, like driving away your subscribers or audience with more s or advertisements. Your instinct after a successful sales campaign may be to up the frequency of your s, but this may only service to alienate or annoy your existing customers. The fundamental problem with the Return on Investment metric is that it only takes into account tangible, monetary gains. Customer goodwill, loyalty, visibility, and strengthening your brand are all positive and necessary outcomes from the activities you spend money on, but won't necessarily translate into immediate or measurable sales. While money is an acceptable measure of your success, it is by no means the only way you should be judging your efforts. There are other ways to measure the level of your interaction with your customers, and work to improve these numbers. 5

6 Then Why Measure ROI? The first thing that needs to be made clear is that a low ROI is not necessarily a bad thing. As was stated above, there are plenty of other benefits that your investment can gain you beyond money. Additionally, many hobbyists looking to grow their business can't support themselves on a gain of only 1000, even if the ROI value is 100. Spending money to make money is a reality, and it can be hard to judge when efforts are successful, especially when you're just starting out. As you will read shortly, social media can be amazing way to trade your time and efforts for increased goodwill, and maybe later, sales. All of these limitations aside, Return on Investment can be a necessary metric to consider, especially if you are accountable to others who expect you to calculate an ROI. The next step is to figure out how much money you have actually spent, and how much you have earned from the endeavor you are considering, and that calculation can be extremely difficult. 6

7 When determining your investment, you have to consider many factors. You're spending hours of your time working on this yourself, and those hours are worth money. Have you paid someone to write your content for you? Have you paid for social seeding or advertising? Have you hired an SEO professional to help guide your content creation? Are there other aspects of your business that are benefiting from these activities that you haven't considered? Well, get used to complicated calculations, because if you thought valuing your investment was difficult, try determining the value of your return. Adding up all these numbers becomes especially different when you throw social media into the mix. 7

8 The Nature of Social Media Before we even start discussing social media, if you are looking to directly drive sales by being active on social media, throw that idea out the door. If you're looking for immediate return on the investment of your time and money, avenues like direct marketing or something like Pay Per Click (PPC) marketing is probably more your style. Social media can be amazingly valuable for driving sales, but only indirectly. Your customers are probably not using social media to shop for holiday gifts, or to research an insurance provider. You probably don't, so why should they? Social media is better used to build your brand, engage with your customers, and provide a medium for customer service interactions and news than it is to directly drive sales. 8

9 The fact is that people who interact with you on Facebook and Twitter are not at that point in the purchasing pipeline, but you could get them there. Social media is also a great way to build your career as a professional, and to provide an outlet for curated content that the media can use for coverage of your business. If you just look at metrics like Return on Investment, social media can be seen as a waste of resources. We know that isn't true, so why try to place a number on the many benefits social media can provide? 9

10 What is a Like Worth? While some have tried to place a monetary value on something like a Facebook like or a Retweet, it simply can't be done. There is no way to definitively value something so far removed from the actual money making process. There are other things to consider than profit that can be just as valuable to you as a business owner. To better illustrate this point, here's an example. My sister Rita is a huge fan of a particular brand of cosmetics, Pretty Lady Face Powders. She spends hundreds of dollars in their stores every year. She happens to like their Facebook page, and frequently comments on their status updates about sales etc. I, on the other hand, don't really like their products and don't engage with them on social media at all. 10

11 Is my disinterest in their product a failing of their social media presence? Of course not. I simply don't like their product, and there's nothing they could do about that. Is that their fault? Also a no, there's no way they could please everyone with their product, that would be an impossible goal. Is Pretty Lady Face Powders using Facebook to convince my sister to buy their product? In this case, no. She liked them (in real life) long before they ever had a Facebook page to click like on. Their social media presence may not be responsible for the sales that she provides them, but it does help her continue to engage with their brand, voice her questions and concerns, and generally keep up to date with the company's activity. 11

12 Does that drive sales indirectly? Quite probably. Does it also provide her with an easy way to share Pretty Lady Face Powders' updates, coupon codes, and sales announcements? Definitely. Another issue that comes up when trying to measure the Return on Investment from social media is the problem of double counting. What happens if Rita, your fan on Facebook, buys your product through an organic Google search? To which avenue do you attribute that sale? There are many difficulties that make the actual ROI extremely challenging to determine, but never fear! There are many other benefits you can gain from engaging with your customers and fans on social media. 12

13 Why Use Social Media Then? Social media is a complicated issue, but can be hugely beneficial to your company in many areas outside of direct sales. Social media should not be viewed as a channel for sales, but as an engine for customer engagement. Sites like Facebook, Pinterest, Google+, and Twitter are amazing for interacting with your customers, providing quality customer service, public relations, and strengthening your brand. When you use social media, you are giving your customers very easy ways to talk about you, your products, and your services. You can shape the perception of your brand and your company through the careful use of your online presence, with things like posting articles about your company or relevant topics, sharing photographs, news, etc. 13

14 You are in control of the content that you put out, and through conscious curation you can shape your public perception with ease. Customer service is another amazing use of social media. When customers have problem with a product, they often turn to social media outlets to voice their concerns. This is often because of accessibility, but they also know they will receive a response quicker if they voice their concerns in a public forum. You will save yourself money and time by having these channels open for your customers to voice their concern. 14

15 How to Best Leverage Social Media (And Measure Your Success) Social media can be amazingly valuable, but how do you best use it to your advantage? And when you've put all that effort in, how do you measure your results? The answers to those questions depend heavily on the medium you're using, and what you're hoping to gain from your online presence. 15

16 1. Engagement If you're trying to get customers and potential customers talking about your products and services, measuring factors such as likes and follows is a great way to track how well you're doing. One thing to remember, however, is that a customer who likes your page but never engages with you or your content may as well have not liked or followed you in the first place. Your focus should be on measuring the actual interactions you have with your fans. This is best done by looking at stats such as retweets, mentions, shares, and comments. Look at what type of content inspires the most interaction, and try to focus on that type of engagement for the best results. 16

17 2. My Brand Measuring brand perception and awareness is more of a challenge, as these metrics require you to survey your customers and followers to really get a good idea. One method of measuring this is to use a market research firm to conduct a study on you and your brand. If this isn't something you can afford, you could try to do it in-house by doing a little research yourself on the process. If you do elect to do this yourself, just be careful you aren't getting biased results by only surveying one demographic (i.e. only Twitter followers). 17

18 3. Public Relations The PR value of your social media investment is another area you should not ignore. Did your Facebook post or series of Tweets inspire media coverage? Were you invited to speak at a trade conference as a result of your in-depth post on LinkedIn? These are all results that can't be measured in terms of dollar values, but are extremely valuable to your business and your brand. Consider measuring these using advertising value equivalency. At the very least, record it every time your social media presence inspires external coverage, and try to monitor your progress in this area. Although not necessarily representative of the whole picture, measuring site visits that were referred from social media is not a completely useless metric, and should be measured. I advise you take these numbers with a grain of salt, however, as they could be unrepresentative of the entire picture. 18

19 4. Customer Service One great way to measure the effectiveness of your social media presence on the level of your customer service is to measure and record the number of questions, complaints, and other issues that you deal with via your social media pages. How long do these issues take you to resolve? What percentage of your issues are addressed via social media versus phone or ? Is the average time you spend resolving an issue less from social media? What percentage of your issues are addressed via social media versus phone or ? Is the average time you spend resolving an issue less from social media? Depending on the size of your company, these numbers could have real impact on how much money you spend on customer service. 19

20 Using outlets like Twitter or Facebook could save you money that you would otherwise be spending on a call center for customer support. The other benefits of dealing with issues in a public forum is the time you can save from providing answers to common problems, thus saving repeat support tickets. You also show your customers and potential customers that you care about their questions and issues, and value their input. This ties back into both public relations and brand management, so don't undervalue the time you spend responding to issues on social media. 20

21 Conclusion In conclusion, Return on Investment as a metric for measuring success is flawed and ineffective in many areas, including social media. Measuring success is possible, but you have to understand and accept that your success is not always going to come in the form of direct conversions and monetary amounts. Understanding the strengths of social media, such as an avenue for engaging customers, providing customer service, and promoting your brand, will help you work to improve your online presence without worrying about metrics like ROI. If you must calculate ROI for your social media presence, there are things you can measure that are much more effective and accurate than simply money made. You are gaining so much more from social media than a simple ratio like Return on Investment can capture, so don't be disheartened if your values don't turn up amazing. Learn to love the intangible benefits social media can provide for both you and your customers. 21

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