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[Dailyssimo] Return of Investment in Social Media

If you read my article about the KPI of social media it is closely related to what we know as ROI (Return Of Investment). There has to be a clear benchmark to count ROI, so KPI is the benchmark for ROI.

Many say that ROI in social media is unmeasureable but can be tracked, others say that social media’s ROI is noticeable when the level of customer’s satisfaction moves up due to the activity of online community. And there are many more explanations about ROI in social media.

While those answers come up, the thing that can be confusing and convincing at the same time is you will still find it difficult to answer the questions from your business partner or client who demands answers in a reasonable business perspective.

Those are the things that sometimes make us sceptical about social media, things that seem to have no clarity in structure and flow. Why you should look for something that was not even measureable? And how do you track and collect the data with the right tool? How can you control the mistakes that often happen? How to articulate the business cases for social media?

If you’re an executor in social media then you may have witnessed a buyer decides to buy something based on the review of other buyer or because they see a link on Twitter. You may also have witnessed the change of sentiment toward a brand along with what the brand is doing on social media. You may also have succeeded in raising the share of voice of the brand you’re handling way over their competitor by using influencers and brand ambassador.

Whatever happens, justifying a business case for social media is still a big question. How do you justify something that you do or want to do? How to request a budget for social media project? And so on and so forth.

Uncertainty in measuring ROI of social

The fact that we often get is, there is always the ROI on eacch item or service that has value, but how can we calculate the ROI of social media is not always clearly visible. Study of Lenskold Group features social media’s ROI measurement compared to the measurement of the ROI of traditional marketing. This study shows that less than 20% of people are feeling able to measure the ROI of social media (see the figure below).

Of the respondents obtained by Lenskold Group for its study on marketing’s ROI,55% mentions that the measurement of social is high priority, with following reason (can be seen in the table below):

  • 65% need improvement in effectiveness
  • 59% require a means to integrate with other marketing activities
  • 48% feel the need to show measurable result

And of the respondents that stated that the measurement of social media is low priority (45%), the result obtained are:

  • 41% said they are still experimenting with social media
  • 19% do not have clear definition and objective
  • 18% do not have sufficient budgent for social media

What makes social media’s ROI is now required?

In the theory of technology adoption by Roger’s Difusion Theory, we can see that each time, a group of people adopting the technology in different ways. Those groups of people are:

  • The Innovators: Always want to be the first in adopting new technologies.
  • The Early Adopters: This group is the second group who jump to try out new technology after the Innovators did. This group has not considered the ROI of social media as something urgent (at least for the next 5 years).
  • The Early Majority: This group is the largest group who mostly work in companies. They act “wait & see” toward all things new. They feel they must be convinced first. They love everything that is certain, so they can decide the next steps. From this group emerged the question “What is the ROI of social media?”, in other words, they will be loyal once there is evidence. This group is the biggest group which mostly works in companies.
  • The Late Majority: This group is going to adopt something new after The Early Majority did
  • The Laggards: This group has never adopted any new technology

The reason why now the ROI of social media is questionable is because at the moment, we are already at the third phase where the first two phases have already been done by The Innovators and The Early Adopters. Both do not need anything that could hold them to adopt something. And the next group is The Early Majority where they need proof; case study and ROI. This group begins asking social media’s measurement and ROI.

In addition, there are some situations that ultimately drive a brand to engage in social media. The emerrgance of questions such as “What do we have to do on Facebook and Twitter?” and often that not too many understand what they are looking at this new realm, the only thing they know is that their competitors have started jumping in to the social media arena and they must follow to “enter” as well. And this could mean that there is no business analysis. What happens is because they were ordered by their superiors. These conditions led to many companies/brands have to do impromptu PR action against the typical social media crisis. Soaring negative sentiment makes decisions must be taken immediately, and this raises the awareness of the need for case studies or ROI calculation.

What is needed to calculate the Roi of social media?

Strategy, Business Goal and Objectives of Social Media

Each organization has specific goals and objectives to be achieved, so this is one of the reasons why the answer can vary. One example for instance:

  • Determining what is being said by people in cyberspace about your brand through social media monitoring.
  • Collecting competition data
  • Dealing with users online
  • Directing an idea through relevant content sharing
  • Maximizing the reach of content and messages through social media
  • Supporting sales and marketing campaigns
  • Assisting the recruiting process
  • Building user community

Collecting social media data, measurement and KPI

Many misintepreted social media data, measurement and KPI as the ROI. Data and measurement are not ROI. Data and measurement are so we can figure out public’s reaction to our brand/company in the cyberspace. To get the ROI, you should use the measurement data and convert it into the business language, plus the advantages (benefits).

Which is ROI and which is not

As discussed above, the ROI is not the metrics (measurements), but you need metrics to measure the value of business initiatives, whether it is driven by social media or not. The calculation is as below:

Benefit can be measured from, for example, user’s satisfaction rate or a decrease in customer service agents expense, and others.

Costs is the amount of investment in social media program executed, also involving manpower, marketing process, technology (software and its implementation).

It is time we all start digging and find the numbers on the size of the activities carried out in social media. So a brand can have valuable information which can make you categorized as a thought-leader, especially if you really are capable to get the ROI of social media. It takes courage, tenacity and orientation to detail. But with practice and discipline, then getting the ROI for social media will soon become your specialty.

Note:Most of the source is from ROI of Social Media: Myths, truths and How To Measure, by Dr. Natalie L. Petouhoff.

Abang Edwin is a practitioner of online community management since 1998 long before the term social media/social networks become popular. He began his journey by experimenting with several online communities which eventually successful at that, to this day he still gives consultations about knowing character and foster online communities for brands / agencies and individuals.

He was at Yahoo! for over 4 years as a community manager and also formerly Country Manager – Indonesia for Thoughtbuzz.net, a social media monitoring company.

Keep up with him on Twitter @bangwinissimo or his blog on bangwinissimo.com.


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