Posts Tagged: "ROI"

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’sMost 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 aroundreturn 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.

Do you think social media measurement is only about return on investment (ROI)?Are you struggling to find measurements that are meaningful to your organization? Do you feel like you’re searching for a needle in a haystack of metrics?

Here are 8 useful metrics that you may not be measuring, but should be.

#1: Conversion Rates

Everyone wants to measure the volume of leads generated to get to the bottom-line ROI of social media efforts. But don’t forget about the value of the conversion rate! While the volume may not be there yet, the propensity to convert may be staring you right in the face.

You’ll need to have a mechanism in place to know when a lead comes from social media. Most people use the combination of a URL shortener and some form of a “cookie” to attach a campaign to a lead. Hootsuite has integrated Google Analytics into their URL shortener for a seamless transition to success metrics in analytics, while some companies are using proprietary shorteners and others are still trying to figure out how to do it.

One of the most important steps in understanding where your lead came from is toknow when someone clicks on a social media link and then converts. The most reliable way to do this is to place a “cookie” on the user’s machine with the campaign name for the social media channel that generated the click. Then use your campaign reporting to track the number of leads and conversions you’ve generated.

The number will likely be fairly low in the beginning but by looking at conversions divided by leads, you can get your conversion rate for social media leads. Compare this against other marketing channels to see if it’s higher or lower.

# 2: The Control Group

Some of the greatest metrics I’ve brought forward in my company really didn’t look that impressive when I first got them. The volume of leads generated was pretty low when compared to our other marketing channels.

However, when I compared them against a group of people that had not interacted with social media, I found some amazing stats that not only got my executive team excited about social media, it also showed that social media has a huge impact on our ability to convert leads. This certainly makes it easier to justify budget dollars to integrate social media into the sales process.

To add a control group, run the same metrics you normally run against a group that has never interacted with social media and compare them. Look for how social media compares in areas like lead conversion rates, retention rates and costs.

CareOne has seen that social media involvement in the sales process has greatly improved the rate of those who sign up for a debt relief plan and the propensity for those new customers to make their first payment.

#3: Growth Rate

While you’re building volume, measure the growth rate over time. Being able to show that volume is growing at a healthy rate helps prove that your efforts are generating an impact. The reality is that it takes time to build a sustainable social media channel; thus, setting proper expectations is very important.

#4: Marketing Campaign History

It’s really important to look at how your company reports on “cookies” related to a sale. After doing some digging, I found that my company was attributing the credit for the sale to the campaign that was the first cookie the prospect had received. We can now report on the originating campaign, the campaigns responded to in between, and the converting campaign.

This helps us know all of the drivers to the sale and appropriately adjust costs related to the sale to get closer to a true ROI as well as look for that magic mix. Even if your sales process isn’t online, you need to make sure your CRM system allows for tracking to marketing efforts through the entire sales cycle and your teams are appropriately trained to track it.

#5 Customer Acquisition Costs

Everyone is touting how “cheap” social media is, though many of us have realized that is somewhat of a fallacy. However, it is cheaper than many other traditional channels, so measure the full campaign history (as stated in #2) and then assign the cost per conversion and compare it against your control group.

Here are two examples of how this can happen:

• A person clicks on a link in one of your tweets and goes to your site and converts into a new customer.
• A person clicks on a paid advertisement on Google and doesn’t convert. Then later clicks on a link in one of your tweets and goes to your site and converts to a new customer.

Depending on your business model and typical advertising expense, in the first example, the cost to generate that customer could be less than a standard customer who comes through paid advertising.

In the second example, the cost will be higher than the standard customer who comes only through paid advertising, BUT even if it’s slightly higher for those who responded to more than one channel for lead generation, the incremental cost of social media will likely be less than trying to replace the unconverted lead with a new one.

#6: Retention Rates

Right behind the ability to convert a customer is the ability to keep a customer. Compare the inclination of new customers to stay customers with and without social media interaction. The theory is that those participating in social media are more engaged and likely retain better.

In order to do this you’ll need to keep all the leads converted in #1 and track them over time. If you have an ongoing fee, measure how long they stay a customer. If you’re more of a onetime sell, measure if they come back and buy something else and how often they do. Then compare this against the control group of those who didn’t interact with social media and see if there are any improvements worth noting.

#7: Customer Saves

Many teams are using social media to help customers online and this often includes managing complaints. Measure how many times your team saves a customer from cancelling, switching or returning your product/service.

#8: Cross-Sells

Are social media customers more or less likely to buy additional services? How much revenue per customer was generated from social media compared to non-social media customers? How much revenue was generated from additional purchases and/or add-on products for social media customers? Compare this to your control group and you’ll be able to tell if social media has an impact on up-selling or cross-selling.

This is certainly not a complete list of metrics, but it gives an overview of some of the most commonly missed measurements that contribute to showing social media’s value to your organization and/or clients.

What would you add to the list? Please let us know what you think in the comments box below.