On a basic level, business is about achieving a positive return on investment (ROI). At your midmarket company, you're investing in equipment, new projects, and new hires only when you're projecting that the revenue generated by these investments will be higher than the cost. It's no different with social media initiatives, but a shockingly high number of companies are still operating in the dark when it comes to measuring social media ROI. According to a 2013 survey by business-intelligence company Domo, seventy-five percent of marketing experts working for companies say that they are not effectively measuring their social media ROI.
Luckily, it's fairly simple to measure the costs of social media efforts. There are fees for software, costs related to training your social media people, and the labor hours involved in your social media efforts. These costs are eminently trackable. On the other hand, the benefits of social media are far harder to measure, especially in terms of how social media efforts are connected with sales, raising consumer awareness of your goods and services, customer retention, and customer acquisitions. Fuzzy metrics such as "customer-engagement levels" and "consumer consciousness" of your products just don't do the trick in terms of measuring your social media ROI.
Here's a seven-step plan that will have you measuring your returns from social media more effectively and precisely:
- Know that you can measure the effectiveness of your social media efforts in terms of dollar amounts and other more precise metrics. Back in 2010, Houston-based middle market company Coffee Groundz started using Twitter as a direct sales channel and saw a twenty to thirty percent increase in orders for its coffee. Vitabiotics, another middle market firm that sells vitamins, used social media to do market research when developing new products, saving over $100,000 compared to traditional market-research efforts.
- Create customer-action goals for measurement. You should use social media to encourage potential customers to take actions that will eventually convert them into customers. These conversion actions might be as simple as registering for your newsletter, watching a video referral about a product or service, downloading a brochure, or (obviously best of all) actually making a purchase. These actions are the returns on your investment because they engage potential customers and motivate them to become buyers.
- Use analytics to track conversion actions. You might use Twitter to drive people to your website, where they can be further engaged in your marketing messages. An analytics tool such as Google Analytics will allow you to precisely track how many potential customers have visited your website following the Twitter link, how long they remain on your website, and what conversion actions they take while at your website. Having analytical tools is essential when measuring your social media ROI. Data should be tracked, reported on, and used to develop an evolving strategic approach.
- Assign a monetary value to each conversion action. If your marketing people have historical data related to the lifetime value of each customer, then use this as a starting point. If not, use a good-faith estimate for the value of each new customer (i.e., how much you might pay for a new customer). Once you have a value assigned for a new customer, you can use this as the basis for measuring the value of conversion actions. To use a hypothetical example, let's say that the lifetime value of a new customer is $200 and that five percent of people who view a product video become new customers. Going off of that info, you can safely assign a $10 value to each viewing of said video, so a single tweet that gets you sixty views of the product video has generated $600 in value. The return on investment would then be $600 minus the costs related to the tweet (the labor time and some assigned value for the cost of the video, which will of course be used over a long period of time).
- Measure benefits by social media channel. If one thing is certain about social media, it's that very little is certain or predictive. You may think that Facebook will be a better platform for driving traffic to your website, but you may well discover in practice that Twitter (or LinkedIn) is far better. Make sure you break up the benefits and metrics by each social media platform and put your investments into the platform that is performing the best for your firm. The right mentality for all social media efforts is very simple: you can have strong ideas about what content you believe will perform better on what platform, but whatever you do, be sure to follow the data. If you're surprised by the effectiveness of Twitter, then use Twitter more.
- Determine your cost structures. Just as in all other parts of your business, track your costs closely and use them when measuring social media ROI. As mentioned before, typical costs related to social media might be costs of producing content (a video, a blog post, etc.), as well as the labor costs related to the people working on your social media. It takes a major time and cost commitment in the social media world to truly interact and engage with your potential and existing customers.
- Analyze results and report on them to relevant people. Above all, social media is about learning how to engage and convert the consumers of your content into consumers of your products and services. The only approach that works is one that's flexible enough to follow where the data and metrics lead you. It doesn't matter if you don't use Facebook in your private life; if it's driving traffic and sales for you, you have to be on board for Facebook's ROI for your middle market company. Throw assumptions out the window, and go where the numbers and conversions are indicating positive trends. Build an organizational focus on social media by sharing success stories and numbers so that you can get more employees on board with the initiative.
Following the seven steps above will allow you to precisely measure the benefits generated from your social media efforts, making you far better off than the aforementioned seventy-five percent of companies that seem to have no idea what return they're getting from social media output.
When a midmarket firm starts up its social media efforts (and is therefore lacking analytical results to draw upon), what is a safe range of financial output to dole out in order to get the social program under way? Let us know what you think by commenting below.
Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education.