By Tom Pisello published January 13, 2011

How to Calculate the ROI from Social Media Marketing

Businesses are expected to increase spending on social media marketing by more than 40% percent in 2011, according to marketing research firms Altimeter and Alinean.

Still, in today’s “age of austerity,” every significant investment requires proof of bottom-line impact and superior value – a condition called Frugalnomics.

To deliver social media ROI measurement results for your company, you first need to answer two key questions:

  • What investments are required?
  • How much effort is needed to deliver specific results?

Here are some practical solutions that will help you effectively measure social media ROI.

Calculating Social Media ROI

Calculate the ROI of social media by comparing investments versus outcomes using the Social Media Value Chain.

Investments

Social media requires an investment in these areas:

  • Marketing labor
  • Resources and tools to establish the social media presence
  • Content and campaign creation
  • Campaign monitoring
  • Social media collaboration and measurement.

Engagement
First, measure engagement by keeping tabs on the number of followers and advocates you have reached from your social media marketing efforts.

Benefits
Measure the impact social media marketing has on the bottom line. Consider things such as:

  • Generating incremental revenue with new prospects and existing customers
  • Driving product / operational savings and innovation with collaborative partners
  • Avoiding costs for other less effective, less efficient or redundant lead-generation  programs.

Derived Value and ROI
Compare the ratio of investments versus derived benefits to assure the social media efforts are generating enough value compared to other potential investments.

By using each step in the Social Media Value chain as a method to determine costs and benefits, marketers can understand the components needed to achieve value and then calculate the ROI.

 

Trends in ROI

Using the Social Media Value Chain, Alinean (my company) analyzed hundreds of different organizations to determine the potential ROI. They found the following trends:

Substantial ROI is possible

Companies that aggressively pursue social media channels and implement innovative campaigns can achieve an ROI of 500% or more. Brand popularity and audience persuasion in social media are important.

Certain industries with better social media engagement produce greater ROI, particularly larger companies with popular brands and customer demographics that match social media users.  Industries that are reaping better ROI benefits include high technology, consumer products, retail, travel, media and entertainment, hospitality and automotive.

However, the majority of organizations are realizing only a marginal or negative ROI, especially companies that have to spend more to engage customers effectively and reach critical mass. This includes small and midsize firms because their brands may not be as well known as large companies, and their customers and prospects may not be using social media. Companies that are grappling with these challenges are in energy, utilities, wholesale and distribution, pharmaceuticals, health care, chemical and services.

Best practices matter

Best practices matter in social media ROI success, especially for those companies that implement a hierarchical approach to engagement. The Social Media Hierarchy of Needs are:

Tier 1:  Content – The foundation of any social media campaign is strong content marketing strategies and deliverables. If you don’t have anything important to say or information of value to deliver, you won’t achieve engagement with users.  The type of content that works will vary depending on your goal.

Tier 2: Campaigns – Users won’t know the content exists without campaigns: a promotional “push” of messages via social media channels. This can include basic messaging like tweeting, status updating, posting discussions and links, or sponsoring contests and sweepstakes.

Tier 3: Monitoring – Monitoring is required to listen to the user community for campaign and content effectiveness, advocacy and customer intelligence, trends, competitive intelligence, and incidents / issues, and to respond to direct questions.

Tier 4: Collaboration – Interacting with users is a differentiating element in the most successful social media campaigns. This includes promoting and participating in collaborative discussions and engaging users in product reviews, shared designs and innovation.

The Bottom Line

As social media garners more investment, marketing needs to be able to quantify the value of these investments. Understanding the value chain and best practices is key to helping marketers implement successful social media initiatives and greater ROI.

Download the full white paper: How do you Calculate the ROI from Social Media Marketing?

Are you achieving an ROI from your Social Media efforts? Run the Alinean Social Media ROI Calculator to see for yourself.

Author: Tom Pisello

Tom Pisello, the ROI guy, has built his 25-year career helping companies to get more business value from their IT and business investments. Tom’s latest endeavor, Alinean (a CMI benefactor), was founded in 2001 to develop SaaS software for changing the way B2B sellers reach frugal buyers with interactive white papers, assessment, ROI and TCO tools. You can read Tom's blog, see related research and best practices or follow him on Twitter @tpisello.

Other posts by Tom Pisello

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