The hardest part of writing anything about calculating Return On Investment (ROI) in social media is coming up with an introduction. What do you say? Proving ROI on anything is complicated; there are very few activities, if any, that you can directly show a percentage. There are books devoted to proving ROI and other performance indicators.
This is the very basic formula for ROI. I wish you could shake some magical piece of software and some numbers would fall out that could be plugged in a formula that would show how awesome I am doing. Unfortunately the magical software is under development and will not be completed any time soon. In the mean time we have to find other innovative way to measure the success or failure of our social media campaigns and what social media can be used for.
Traditional Media Equivalence
Radio, TV, and print have been around for a long time and most people feel comfortable when they hear that 10,000 people saw an ad or 6,000 people heard a radio spot. These numbers are really no different than reach or views on social media but due to their use over decades have made them commonplace.
The metrics on many platforms provide great detail about the audience that views your content. Use that information to calculate what is the cost per impression using social media versus cost per impression (or 1000 or some number) using traditional media. A positive number indicates that social media provides better value at reaching your target audience than a traditional channel. A negative number would prove the opposite.
Value Per Prospect
Many businesses attempt to gather prospects or personal information so they can specifically target those people with ads, mail outs, and other promotional material. Over time a business will determine approximately how much each new prospect is worth based on response raters and average spending. The same can be done on social media on a platform by platform basis. I say platform by platform because every single platform will allow access to various information and limit in the ways you can communicate with your prospects.
The term prospect will also vary from platform. On Facebook a prospect would be a page fane, on Twitter it would be a follower. Keep in mind that this is a metric best used after you have some data already from different social media platforms. It would be difficult to predict a value of a follower before some data is gathered.
Sentiment and Branding
Social media is the greatest listening tool currently available. Just a few years ago companies had to rely on focus groups and questionnaires to ascertain what consumers thought of their product and brand. Active polling suffers from many issues such as bias in questions and that the answer you get is always biased depending on who is asking. By passively listening on social media a company can receive immediate feedback about the positives and negatives that surround their brand.
There is no specific formula since it is hard enough to define what a brand is. However you do get key indicators in the shift in keywords and sentiment about your brand from real time social media monitoring tools. Are the keywords reflecting what you want said about your brand? Is the right audience talking about it? Are there issues that you never knew about? Social media can be great at detecting issues and problems with products before any warning comes from a traditional channel. The ability to avert crisis before any escalation cannot be quantified but this ability can be almost priceless.
Things to ponder:
1. Are my formulas correct? Seriously, are they?
2. Are quantitative methods best at proving ROI?
3. Is ROI always the goal?