Can social media generate immediate profits for a company? Yes, of course. A popular Socialnomics video demonstrates how successful social media policies can yield a tenfold increase in the business value of an enterprise. Lenovo’s creation of online support communities achieved a 20% reduction in call center activity, thereby reducing operating cost.
The more difficult question is whether these marketing outcomes can be measured with the same parameters traditionally used to calculate ROI—measures to calculate money invested relative to the benefit of a particular marketing action.
The traditional ROI formula is the following:
ROI = (Gain – Investment Cost) / investment Cost
This formula produces a value that represents the income or capital earned by the investment, deducting its costs. For example, if the benefit is 4 and the cost was 1, the ROI would be 3—a gain of triple the amount invested.
More difficult to calculate are those intangible benefits that cannot be readily translated into earnings and hence are not easy to measure? For example, suppose you are a fast food restaurant manager who decides to invest in personnel training to improve customer service. Improved courtesy and efficiency certainly will have a positive effect on the company’s image and sales, but it will be difficult accurately to quantify the whole effect.
The same is true with social media marketing. The truth is that it is probably premature to try to apply the ROI concept to online communications. It works for advertising and traditional direct marketing, especially activities closely related to sales momentum. However, it is less clearly applicable to activities related to branding, loyalty, and customer relations.
Of course, this does not mean that social media strategies need not be measured. On the contrary, having adequate follow-up data is the only way to know if we are going in the right direction. Monitoring social media effectiveness requires definition of two basic issues: (1) What is the goal of a social media marketing activity? (2) What metrics will measure achievement of the goal?
It is important to plan social media strategies with long- and short-term objectives. In the short term, non- financial parameters can be measured—website visits, impressions, comments, positive press, clicks, etc. In the long term, these objectives should have an impact on financial growth measures such as increased sales and improved profits.
For adequate long-term outcome measurement, it is necessary to compare the business’ growth before and after execution of a social media strategy. It is necessary also to superimpose analysis of non-financial factors (e.g., number of visits and comments) over analysis of financial factors (e.g., sales volume). Furthermore, it is important to understand that social media’s impact goes beyond its measurable financial effects. An appropriate social media strategy will influence quality throughout the company, from visibility to customer service to HR policy.
