December 23, 2009

As more and more businesses – big and small – start to embrace social media, it becomes equally important for businesses to track their return on investment (ROI) from different social media tools and campaigns.  It’s important to measure the positive and negative impact that any strategy has on your business and this is just as true with social media as it is with anything else.

When measuring the ROI from your social media tools, keep these things in mind:

Establish a current performance baseline and define clear goals.

When looking at how to measure social media ROI, you need to first define your goals and establish a baseline for your current levels. If your goal is to increase customer conversions or social media mentions, you need to have a baseline level of what those conversions or mentions are before starting a new campaign.

Metrics are meaningless without context or direct behavior correlation.

It’s easy to assume that ROI is just metrics. That’s not true. Metrics make up how you calculate ROI, but they aren’t the same thing. In order to calculate ROI, you need more than just the number of people following you on twitter. However, the number of referrals your web page gets from Twitter and the number of those visits that turn into conversions is useful information.

Tools and services are wonderful but they won’t do all the work.

There are lots of different tools and services you can use to help track different measurements that go into computing ROI, but ultimately, you are still going to need to do the heavy lifting yourself.

To make it easier, try to make your information trackable whenever possible. This means using  shortened URLs that come with analytics add-ons and offering coupon codes or other promotions based on where a customer finds out about your business (so your Facebook code would be different from your Twitter code).

Tools are still an important part of the process, so here are some to check out:

Google Analytics – Google offers a lot of tools for tracking traffic and activity on your different sites. The ability to see where users are coming from, how often they stay and where they go can be very helpful when calculating ROI.

HootSuite – HootSuite offers tracking and management tools for Twitter, Facebook and LinkedIn. One of the nicest features is the ability to pre-set posts and to also track the activity on each link you send through the client.

Vitrue SRM – Vitrue has a fantastic tool aimed at larger businesses called Virtrue SRM (Social Relationship Manager). It’s basically a CMS for controlling all of your different social media activity. Scheduling posts, tracking links, comparing performance information of different types of posts or different designs, link and video analytics – this does it all.

Social media might be a different way of marketing or connecting with customers, but the ways that you can tell if it is successful or unsuccessful are the same as anything else. Social media isn’t a magic bullet, and having a Facebook Page won’t make your business instantly more profitable. By defining goals, setting a baseline, and tracking and correlating actions to results, you can figure out what works, what doesn’t, and ultimately figure out what solutions are worth investing in, and what options need to be altered or set aside.

If you want to read more about social media ROI, you can read this in-depth post I wrote on the subject for Mashable.

Image courtesy of iStockphoto, TennesseePhotographer

Join the conversation ( 9 )

• Kathy Herrmann 2 years 0 months and 25 days ago

  

  Christina,
  
  Thanks for your article.
  
  We all need to remember the purpose of social business initiatives (including social media outreach). It's the same goal as every other corporate initiative. To make money.
  
  Most companies are opportunity rich but resource limited. Thus, economic analysis of the field of opportunity for corporate initiatives is a must. The analysis gives execs the insight they need to select the best initiatives to invest in...those that are forecast to provide the highest value.
  
  Execs will embrace social business initiatives much faster when and if a satisfactory economic value can be demonstrated -- and is shown to be higher than other potential intiatives.
  
  Most of the valuation discussion for social media focuses on ROI. However, economic analysis is built on 3 planks - Cash flow analysis, Net Present Value (NPV), and Return on Investment (ROI).
  
  Cash flow gives execs insight into expected out-of-pocket gains and costs. It tells them whether they can afford to foot the bill for a corporate initiative.
  
  It's a difficult way to compare a field of investments though, and doesn't take into account risk. That's where NPV comes into play. It brings the cash flow back to a single point by applying a risk factor.
  
  Then ROI provides the final insight into valuation by providing a percentage return.
  
  Social business valuation is an area I'm passionate about. Folks wanting more information (seminars, eSeries, and valuation tool) can find it here.
  
  http://pathlightsolutions.com

• Taylor Marek 2 years 1 months and 14 days ago

  

  Thanks for this article, knew it would come out sooner or later. ;)

• Christina Warren 2 years 1 months and 15 days ago

  

  Jeffrey and Jeff -- thanks for joining in the conversation (I truly think it's important to have -- regardless of how semantically you want to define ROI -- for the record, I agree in the abstract that it is fundamentally about transactions but I've also come to accept that the way it is use by most individuals and even business analysts is much more broad).
  
  I'm in absolute agreement that clicks and site visits are absolutely meaningless on their own in determining engagement -- effective or otherwise. That said, if your goal is to increase site traffic (and we can argue if that is really ROI or not, but if that's your end goal, I don't see how that differs from a traditional financial transaction in terms of how you go about measuring its effectiveness as it pertains to implementation cost), tracking visits and linking them to SM mentions or links and then graphing out a correlation or lack thereof is to me, still a valid way of finding out if your methods are successful.
  
  Of course, I think for most businesses, that's not really the goal. The goal is more sales. Thus, it isn't enough to increase traffic (which you might be able to prove that social media mentions do impact), but for the same or higher percentage of that increase traffic to convert into a sale. I do think you can use tracking methods to trace facebook post with link and coupon code to sale.
  
  But as Jeff points out, I think transaction is far from the only path to ROI. Stuff like support costs, sentiment analysis, loyalty and ERP stuff can be both affected and I do think -- if even only in a broad sense for now -- measured as it relates to social media. In the end, all of that stuff does end up leading to transactional savings -- particularly if your goal is to lower support costs.

• Jeff Katz 2 years 1 months and 16 days ago

  

  Jeffrey makes some excellent points. However, I disagree that a transaction is the only path to ROI. The return on investment can also be seen in cost centers as well as profit centers. When organizations invest in various capital resources (people, technology, etc) be it customer service, ERP systems and so on and realize cost savings over a period of time, that is by all definitions ROI.
  
  Regarding "talking about clicks and site visits as a true measure of effective engagement" Don't even get me started!

• Jeffrey Summers 2 years 1 months and 16 days ago

  

  Having read your longer piece Christina, I can see we're on the same page. But that still doesn't mean we can talk about measuring the variables using the term ROI because there is no ROI of influence unless it leads to a transaction. Even then, it can only have so many degrees of separation from an actual transaction before it's diluted to the point of measurement for the sake of measurement.
  
  As for Olivier's work, I'm a huge fan of his and think, however unfortunate it is, that he is the best and only voice in the wilderness, talking about true ROI and how SM "gurus and experts" are missing the boat by talking about clicks and site visits as a true measure of effective engagement.
  
  The shakeout can't come soon enough for me. Thank you for your post and your comments. I truly appreciate the conversation.

• Christina Warren 2 years 1 months and 16 days ago

  

  Jeffrey,
  Actually if you read my longer post for Mashable that I linked at the bottom of the article, you'll see that I agree with you that it is a financial measurement. My point in this post was to try to shed some light on how to be able to quantify the impact of different actions. Unfortunately, in under 500 words, that's not easy.
  
  I linked to Olivier's fantastic presentation on social media in my more in-depth piece (which I would love to get your thoughts on) and he was actually quite complimentary of my take on the matter.
  
  By no means do I want to infer that influence can be measured by clicks -- quite the opposite -- without context and without a method of linking those clicks with action (or inaction), the overall return on investment cannot be measured. However, that doesn't mean you can't use tools to help connect those dots.

• Belkis Cardona-Rivera 2 years 1 months and 16 days ago

  

  Jeffrey makes a good point that ROI is a measure of financial return and not just clicks, followers, site visits, etc. However, I do think that all those things lead to ROI in terms of profit and tracking it isn't a bad idea.
  
  Christina, thank you for sharing.

• Jeffrey Summers 2 years 1 months and 16 days ago

  

  ROI is a measure of a financial return in terms of dollars and cents. It's articles like this that bastardize the term and confuse people into thinking it's OK to measure influence through increased clicks, site visits, etc...
  
  Unless you measure true ROI in terms of dollars spent and dollars profited, you are wasting your time and your money.
  
  Here's a real discussion of Social Media ROI http://smroi.net/

• Kirsten Knipp 2 years 1 months and 16 days ago

  

  Christina,
  I think you are 100% spot on ... the era of 'we cannot measure social media' is ending and there are a multitude of tools to track not only 'followers' but more importantly results like 'customer conversions' that map to business goals.
  
  Disclosure, I work for HubSpot which provides some of these tools. A few of our case studies reflect how you might track reach and show inbound traffic from Social Media [http://www.hubspot.com/customer-case-studies/] - and we recently gave a webinar in which we shared one of our own Social Media campaigns and how it is doing [http://www.hubspot.com/archive/plan-a-killer-2010-marketing-mix/].
  
  Only with measurable ROI will marketers get the respect & therefore budget they need to make effective use of social media as a serious marketing & engagement tool.
  
  Keep sharing your findings and wishes - we love to hear about the challenges SMBs are facing so we can try to build software that helps:)
  
  Happy Holidays!