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Proving the ROI of Social Media

As social media transitions from its infancy to a more strategic and integrated endeavor, marketers and CEOs are placing an emphasis on capturing its return on investment.

Like all components of the online experience, social media is trackable but understanding the cost implications of social media is difficult. There are a number of online social media calculators out there but none allow you to determine what your return may be prior to investing in social media outlets.  In most cases companies are finding social beneficial but how beneficial?  If you are currently trying to determine if social media makes sense for your company here are a few key indicators Dag Holmboe recommends tracking and I feel should be included in your ROI calculation.

Increased brand availability and visibility – Registrations, page views, press mentions and word-of-mouth mentions all fall into this category.  As in offline marketing, there is value in branding efforts on the Web.  The main difference in the online space is that it is much easier to measure success however you define it. You can essentially estimate and compile the costs of creating similar increases in site traffic, advertising in similar press or offline channels and the hiring of a PR firm to create word of mouth buzz and then deduct that total from the cost of your social media efforts.  Eliminating offline marketing costs should be seen as a return on the investment in social media.

Ad Revenue – If it is appropriate to allow others to advertise on your site, social media channels can be a great source of ad revenue.  These hard dollars are being generated by a blog or social media application and are all easily tracked, thus return on investment can be proved.     

Estimated savings on SEO and PPC – Competitive pay-per click terms can be very expensive so savings in these areas can be easily determined by looking at monthly expenses for each of these services.  Social also offers SEO advantages which will alleviate any consulting costs you currently occur.  Like brand availability and visibility, the dollars involved here are considered soft and in the end, may not need to be spent due to increases in social media efforts.  These savings should be seen as a direct return on the social media investment. 

Savings on customer insightseMarketer recently posted an article listing specific social media tactics many companies are using successfully.  One tactic that made the list is fan surveys.  Depending on your current method of polling or how extensive your use of focus groups is, employing social media to gather this data set could have a dramatic effect on cost savings.

Increased sales efficiency – With more customer information flowing directly to the sales team, an increase in sales efficiency will follow.  What these efficiencies are and how they are determined will vary by company but monitoring the length of your sales cycle and sales by lead source are two indicators that should be benchmarked.  The more efficient the process for consumers, the shorter the sales cycle should be ultimately resulting in an increase in sales from social media lead sources.  It is important to isolate social lead sources versus non-social sources to see how these two customer groups react.  These increased efficiencies translate to hard dollars making this the most important area to benchmark for those of you who much show a sales driven ROI.

Reduced impact from negative user content – This is a fairly subjective return but being able to deflect or address negative comments in a public forum is becoming the norm and not the exception on the Web.  Companies like Domino’s Pizza and Ford are both using social media to battle negative comments and hits to their brand status.  It appears to have worked well for these brands so one could argue that a value can and should be placed on reducing negative impact on a brand since there is a cost associated to fixing a brand through the typical offline marketing channels.

Benchmarking and monitoring the key indicators listed above is vital in becoming more strategic in your social media endeavors.  As in offline as well as online marketing efforts, if you are not able to measure success, you may not even know that you are successful.  Hopefully, these indicators will get you on your way to determining your ROI and help you increase your social media budgets for 2010 and beyond.  If you are ready to take your Social Media tracking to another level give Dag Holmboe’s Social Media spreadsheet a try.

social media, return on investment

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