Did you get a larger social media budget for 2011? Are you being pressured to deliver ROI from your new budget? As the buzz around social media finally made it to executive’s ears their willingness to open the proverbial purse strings loosened, but it came at a price that many marketers were unprepared for … accountability.

If you ask me, social media has finally made it … BIG TIME! The fact that marketers are being told that they MUST measure social media and its impact on the business  are great signs that executive teams are close to understanding where social media fits within the marketing organization. The bad news is there is no silver bullet that is going to suddenly be able to measure the ROI of your social media strategy. As marketers grapple to figure out how to measure ROI it is critical that they start to transform the mindset of their executive team and set proper expectations now.

As a marketer who has successfully measured social media ROI there are some things I recommend you be prepared for.

#1 Measuring Social Media ROI is Rocket Surgery

53% of Marketers said their social media budgets increased in 2011

That’s not a typo. It’s more complicated than Rocket Science and Brain Surgery combined! If anyone tells you that measuring social media ROI is an easy feat, they’ve never done it. To do it effectively you must navigate through some complex technical systems and find a way to interject the social equation. As a marketer you will need to immerse yourself into geek speak with technical systems or you may never be able to connect the dots. And you will need to have a really SMART software engineer as your best friend to truly make it happen.

#2 What You Need to Measure Social Media ROI is NOT Social Media Software

This one probably won’t win me any friends amongst the social media software industry, but I believe this down to my core. There are a lot of great social media software companies out there that are doing a lot of really great things, but they are merely adding data points into the ROI measurement process they can’t deliver the number themselves.  To measure social media ROI you need to figure out how to pass data between your web analytics software, your customer relationship management (CRM) software, your online marketing software, your social media engagement platform and your company’s reporting system/data warehouse. That sounds really scary, but you probably have 85% of the pieces in place today and are actively using them to measure the results of other online marketing activities. The key is to know where to look, what you are looking for, and a few creative solutions to get around the complexity of dealing with multiple systems and platforms.

#3 It IS Possible

Just because you can’t buy a pretty box of software to measure social media ROI, doesn’t mean it isn’t possible. It absolutely is and depending on your systems it can be done with a relatively low level of effort. To put it in perspective, I was able to do it with 12 software development hours. But while you are working on getting it done, I highly recommend you also make sure you can also measure the 8 social media metrics listed in this article too.  They will help you make the case for social media after you understand #4 below.

#4 Your Social Media ROI is Negative

Sorry, there just isn’t any easy way to say it. Most companies haven’t been doing social media long enough to truly show a positive return yet. That doesn’t mean the return isn’t valuable, but if your executive team is looking for a nice shiny picture of positive ROI they are going to be disappointed. You will need to start level-setting their expectations now so they understand that with any new marketing endeavor it takes time to build audience, to engage the audience, and then finally to see conversions from that audience. Right now you are at the early stages of measuring the ROI of something equivalent to what advertising did for brands in the 70’s. It is a long term brand building strategy that will deliver value and ROI to the company by enhancing the brand, however in isolation the effects may be difficult to correlate. If Coke measured the ROI of each commercial or advertisement they did in the 70’s it would probably show a negative return from the data that was available back then. But today we know that those early branding initiatives drove it to be one of the leading brands in the world. If they had stopped then because the “numbers” didn’t show positive ROI, they would likely never be who they are today.

#5 Social Media ROI is Only ONE Piece of its Return

As a recovering measurement junkie, no one loves to measure the ROI of activities more than I do. And I truly believe that social media will show positive ROI in the next couple of years. But I think there are other factors you can look at today that show where it is adding value to the organization and why it should continue.

Here’s an exercise that may help you frame the discussion.

  1. Take a look at all of your marketing activities
  2. Determine what metrics are used to evaluate its success
  3. Divide those metrics by the cost it takes to deliver those results
  4. Apply the same metrics to social media
  5. Divide those metrics by the cost it takes to deliver those results
  6. Smile

Eyeball for eyeball social media delivers more cost-effective impressions, clicks, and site visits than any commercial, pay-per-click ad, or news article. Bank on that!

Want More? Get the FREE 33 page e-book “7 Things You MUST Know to Measure Social Media

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About Nichole Kelly

Nichole Kelly

Nichole Kelly is the CEO of Social Media Explorer|SME Digital. She is also the author of How to Measure Social Media. Her team helps companies figure out where social media fits and then helps execute the recommended strategy across the “right” mix of social media channels. Do you want to rock the awesome with your digital marketing strategy? Contact Nichole

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Comments Policy

Comments on Social Media Explorer are open to anyone. However, I will remove any comment that is disrespectful and not in the spirit of intelligent discourse. You are welcome to leave links to content relevant to the conversation, but I reserve the right to remove it if I don't see the relevancy. Be nice, have fun. Fair?

  • Anonymous

    Excellent article Nichole with which I wholeheartedly agree, particularly your first two points. No software platform can measure ROI of social media programmes because they can’t be tailored to each organisations specific objectives. This has always been the case with the one size fits all approach in PR measurement of traditional media and is even more important in social media. We have spent 17 years measuring media content at Metrica and are yet to find a one size fits all approach that is credible. THis is not something that I expect to see changing in the next 17 yeas either…

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      Richard – Thank you so much! It really means a lot to know you are with me…as I may have a bit of a dissenting opinion than some others. :-) I agree…this isn’t going to change any time soon. Companies need an approach that fits their business, but hopefully we will see tools that are built for integration that can lessen the burden. Have a great day!

      • Anonymous

        Actually there are apps on the market that helps companies estimate the social media return. We, Klurig Analytics, provide a social media ROI solution that helps marketers estimate their social media return and ROI.

        Take a step back. The calculation of social media ROI is actually quite simple. Use the standard financial (r-i)/i and you get the social media ROI. Also, keep in mind that ROI is a measure of the efficiency of an investment so by calculating the ROI for all your campaigns, you can use the ROI to compare the campaigns, apples to apples.

        That part that is difficult is the not the ROI, instead it is the social media return. How do you define social media return? Well, it depends on your goals. For instance, the goal of a social media campaign can be short-terms sales. The value of the sales is the return, which can now be plugged in to the ROI formula.

        If the goals of your social media campaign is consumer feedback, then the return of your social media campaign the estimated value of those consumer feedback. Calculate the social media ROI by plugging in the estimated value and you get the estimated social media ROI.

        Last point: there are no 100% accurate values. It is all based on estimation, however even a fair to good estimate of your social media return and ROI is many times more valuable than having nothing at all.

  • http://kikolani.com/ Kristi Hines

    I think people should spend less time trying to measure social media and more time being engaged with it. Take the two hours you spend on connecting software, compiling spreadsheets, and interpreting reports to listen on Twitter or find new fans for your Facebook page. That is the only way you will ever see any great results.

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      I’m sure most of us who are using social media would love to be in this position. Unfortunately, executives aren’t accepting that anymore. It’s a double-edged sword we get the support…and the accountability all in one fell swoop. I would say that it is hard to identify great results, if you don’t know what “great” looks like and the only way to know that is to measure it. Thanks so much for commenting Kristi!

  • http://www.bizworks360.com Mary Ann Halford

    As I am currently working with a client on implementing a fuller social media program, your site points out the critical challenges associated with measuring the ROI of social media. However, at the end of day, don’t businesses need to look at how social media converts to customer leads and conversions? As it becomes a greater channel for building conversions over time, I do think ROI will become easier to measure.

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      Mary Ann – Great point, yes absolutely. Conversions are the R (revenue) part of the ROI equation. In the early stages you can measure some other types of conversions such as free e-book downloads, webinar attendees etcetera to show progress, as long as you recognize that they aren’t revenue unless there is actually a sale. What I’ve found is that the social media lead tends to be earlier in the buying cycle than the traditional lead. Therefore, by measuring and seeing lower conversion rates and longer lead times I’ve been able to document it and then work to build different sales processes for this specific type of lead. Then test and refine to optimize for conversions. One of which happens to be a soft conversion earlier in the process with follow up marketing to drive the traditional revenue generating conversion. And you’re right once you understand the lead and the buying cycle better ROI starts to improve and eventually should turn positive. But the key is being able to identify where the lead fits in the sales funnel so you can accommodate an appropriate sales strategy. Thanks for commenting!

  • http://twitter.com/jonbarilone Jon Barilone

    Great article, Nichole! I especially appreciate you pointing out that social media is best used to produce long-term results. Definitely agree that factoring cost savings into the equation is a must, too.

    To any other readers out there, I also recommend Jeremiah Owyang’s “Social Media ROI Pyramid” article: http://www.web-strategist.com/blog/2010/12/13/framework-the-social-media-roi-pyramid

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      Jon – Thanks so much for the feedback! Jeremiah’s pyramid is a great recommendation. Thanks for commenting. :-)

  • http://www.online-business-virtual-assistant.com/ Virtual office assistant

    This is so true! social media is an effective tool to get exposure and for creating brand awareness. the best part of social media is that you can have others opinion about your product.. i guess this is the only reason why we are seeing such a huge turnouts of companies in media’s like FB & Twitter

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  • http://www.cygnismedia.com/social-media-application/ social media application

    Great ROI love to read this for 2011

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  • http://www.socialmallard.com/ Kevin Briody

    Hi Nichole, nice write up on the challenge of measuring social media ROI. Overall however I think your various points apply more to measuring the impact of an organization’s *entire* social media effort, akin to how you’d measure overall branding efforts (re: your Coke ’70s example). In that sense, yes, it’s pretty complex stuff, a challenge to measure, and debatable how much positive ROI companies are probably seeing at this point.

    However many companies I talk with are focused on measuring the ROI of specific social media activities- e.g. promotions and campaigns, customer service delivered through FB or Twitter, impact of specific social efforts on sentiment within a given channel, and so on. While still not overly simple to measure, for many of those efforts the measurement is just a reasonable extension of their existing marketing analytics efforts. And in lots of cases you’ll find companies seeing measurably positive ROI for specific social media programs.

    Looking at ROI all up across everything you are doing in social can be like trying to “boil the ocean” – you’re just not going to get there and the thought of it might scare you off. Breaking it down into measurable chunks is a reasonable alternative.

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      Kevin –

      Thank so much for your comment. I certainly can see your perspective. It may really depend on your audience. I’ve actually seen the opposite of what you refer to you as trying to “boil the ocean”. Nice reference! I’ve seen that social compares very nicely with more traditional online channels and usually show positive results within that comparison. My recommendation is not to only look at the global social measurement picture because you can’t get to that level without measuring the smaller pieces. But those pieces are more interesting to the manager level than the executive level in an organization. And it does sound like it is difficult to measure the global picture but I’ve found it’s actually a lot easier than most people think. Most companies have most of the pieces they need, but haven’t connected them together yet.

      Measuring the impact on sentiment is valuable to the organization…but it isn’t ROI. The only way to deliver ROI is to deliver produce revenue that is greater than the investment in the project or cost savings that outweigh the investment in the project. That is a distinction that many marketers struggle with. Value is important and should be measured, but ROI is what profitable companies want in the long-run. The correlation to revenue is where most are struggling because there isn’t an out of the box answer. But it can be done. I believe that if you aren’t measuring ROI, you can’t improve it.

      I appreciate you stopping by and sharing your thoughts. :-)

      • http://www.socialmallard.com/ Kevin Briody

        All good points. Sentiment (like share of voice, etc.) isn’t a measure of real ROI by any stretch – raise revenues or lower costs, the only things that truly matter in term of generating positive ROI – as you note, however it’s something many marketing organizations employ for their social media efforts where the marketing spend is significantly abstracted from trackable impact on revenue or costs. We’re seeing a lot of it with clients – they know it’s not “real” ROI, but look at it as “proxy” ROI that they know through other qual/quantitative research has a real impact on revenues or costs down the road.

        For example, when I was at Microsoft one team I worked on (pre-social media :)) used customer satisfaction (actually Net SAT – top box minus bottom two, add 100 to make it more usable) as a proxy for ROI for all our community efforts – user groups, forums, events, etc. We knew from research that shifts up or down among certain levels of satisfaction had a measurable impact on revenue or costs (e.g. fewer support calls). Could we draw a straight line between a dollar invested in community marketing and a dollar realized in an ROI equation? No, but we could reasonably argue that our efforts were having an impact on Net SAT, which indirectly impacted the ROI equation.

        Convoluted sure, but that’s the fun marketing orgs deal with. :) Incidentally, I have a post up which mentions Proxy ROI (http://www.ignitesocialmedia.com/social-media-measurement/social-media-roi-revisited-4-ways-to-measure/). A more detailed breakdown will come in a few weeks.

        Thanks for raising some important points and keeping me thinking!

    • http://twitter.com/Nichole_Kelly Nichole Kelly

      Kevin –

      Thank so much for your comment. I certainly can see your perspective. It may really depend on your audience. I’ve actually seen the opposite of what you refer to you as trying to “boil the ocean”. Nice reference! I’ve seen that social compares very nicely with more traditional online channels and usually show positive results within that comparison. My recommendation is not to only look at the global social measurement picture because you can’t get to that level without measuring the smaller pieces. But those pieces are more interesting to the manager level than the executive level in an organization. And it does sound like it is difficult to measure the global picture but I’ve found it’s actually a lot easier than most people think. Most companies have most of the pieces they need, but haven’t connected them together yet.

      Measuring the impact on sentiment is valuable to the organization…but it isn’t ROI. The only way to deliver ROI is to deliver produce revenue that is greater than the investment in the project or cost savings that outweigh the investment in the project. That is a distinction that many marketers struggle with. Value is important and should be measured, but ROI is what profitable companies want in the long-run. The correlation to revenue is where most are struggling because there isn’t an out of the box answer. But it can be done. I believe that if you aren’t measuring ROI, you can’t improve it.

      I appreciate you stopping by and sharing your thoughts. :-)

  • Nan Dawkins

    I’m glad to hear someone talk about the multiple sources that are required in order to get to a social media ROI number overall (as opposed to measuring solely on a campaign by campaign basis). Like you, we saw the need for an integrated analytics platform that brings data from different sources (including custom sources such as CRM and sales data) into a single system. This is the thinking that led us to build the product we launched last month, Social Snap, which is NOT a workflow management tool, but an analytics platform.

    Social Snap provides all the data needed to optimize and analyze at the campaign level, but also offers the infrastructure for connecting the dots between other sources that are required in order to fully measure overall SM results (which is what upper management is always going to want to see).

    While campaign level data is absolutely necessary for managers who are on the ground, it shouldn’t be the only thing we measure simply because it is easier or more straightforward. We can and should be working towards frameworks for measuring the overall impact of social, and, as you point out, we’ve got a lot of what we need to do so.

    Thanks for raising the topic.

  • http://twitter.com/cksyme Chris Syme

    I agree with your take about negative return, Nicole, if the only thing ROI measured was dollars invested. But that’s a short-sighted take on ROI, I think. If social media ROI is attached to a specific objective that measures outtakes or outcomes, the return isn’t measured necessarily in dollars, but behavior. I agree that ROI is not simplistic as it is being portrayed by a lot of social media gurus today, but neither is traditional ROI if done right, don’t you think?

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