Magazine article Communication World

Measuring the Real ROI of Social Media: Organizations Need to Understand Not Just the Volume of Stuff They Sell, but the Social Context in Which They Do It

Magazine article Communication World

Measuring the Real ROI of Social Media: Organizations Need to Understand Not Just the Volume of Stuff They Sell, but the Social Context in Which They Do It

Article excerpt

Let's be clear about what we mean when we talk about measuring the real ROI of social media. Simply, ROI, or return on investment, is a profitability measure that evaluates the performance of a business by dividing net profit by net worth, according to Entrepreneur.com. It can also be described as the money gained or lost on an investment relative to the amount of money invested.

Nowhere in these definitions do you see the words engagement, influence, inspiration, awareness, reach, friends, followers, hits or retweets. But if you're going to measure ROI for social media, then you must measure their impact on your business results in terms of the actual investment made.

The food service company Sodexo provides the perfect example of how to do this. Sodexo decided to try to use Twitter for recruitment, investing some time and salaries (approximately US$50,000 worth) in its efforts. More than 50 Sodexo recruiters searched Twitter to find tweets about food, cooking and job searching; they then engaged those Twitter users in conversation and referred them to Sodexo's recruitment web page.

At the end of six months, these efforts had filled enough open jobs to cancel the company's US$350,000 Monster.com ad budget because it was no longer necessary. Net return to Sodexo was US$300,000, or a net ROI of about 6,000 percent.

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The Humane Society of the United States has a similar story. It decided to experiment with a "Spay Day Pet Photo Contest" on the photo-sharing site Flickr. If you donated US$1, you could nominate your own puppy. After six weeks, the Humane Society saw an incremental US$650,000 in donations, or a ratio of return on investment of staff time of around US$13,000 for every dollar spent. Setting up the Flickr account cost nothing.

Dell Computer uses its customer relationship management (CRM) system and Twitter account to measure direct sales from its tweets--and at one point between 2007 and mid-2009 was bringing in about US$3 million from tweeting. Dell offered Twitter-only deals and tracked inquiries about the deals through Twitter and its CRM system. Deduct the cost of salaries of Dell's paid Twitter team and you have the ROI.

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Not bad for what many have called an "immeasurable" form of marketing.

The point in these and any number of other social media success stories is that they clearly defined the desired return. In Sodexo's case, the company wanted to acquire a better pool of job applicants; the Humane Society and Dell wanted increased revenue. In all cases, they realistically accounted for costs and delivered a net return.

There is no doubt that the past two years of economic meltdown have changed the way business does business. Whether you're in publishing, politics, travel, television, health care, technology or almost any other industry, you've seen your business model change. Some of the change has come as a result of the weak economy and high unemployment; still more has come from the social media revolution that has changed forever how organizations relate to their publics.

For decades, most companies have measured success in terms of volume of activity. Sales, marketing, hiring and pricing decisions were all made based on how many units you sold or needed to sell. And there appeared to be a fairly straight line between marketing and sales and units sold. Years of data informed marketers that if you spent X and reached Y million eyeballs, then Z many people would buy your product.

The problem with that premise is that it doesn't (and frankly never did) take into account the enormous, unfettered world that we used to call relationships and now call social media. In fact, that world has always existed--before social media it was word of mouth, and before that it was the water cooler, or the back fence, or forums or bulletin boards or all of the above. …

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