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The Social Media ROI Cycle

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In this week’s post, i am going to share with you an article by Jamie Turner on social media ROI. Most companies today have difficulty in understanding return of investment (ROI) of a well-run social media campaign. In order to do that, you need to know the math and this is entirely against the myth that social media was only about getting more followers on Twitter and accumulating more “Likes” on Facebook.

According to a survey by Econsultancy in 2010, 47% of the companies surveyed were “not able to measure” the value of their social media campaign and “the jury is still out” on the value of ROI for their social media campaign.

The reality is that the future of social media revolves around math, metrics and monetization. So if your company has not been evaluating its ROI for social media, the campaign doesn’t bode well for the long term . In Jamie’s article, he analysed how businesses are setting up, launching and running their social media campaigns and concluded that there are 3 main stages to this process which he called the Social Media ROI Cycle.

3 stages of Social Media ROI Cycle

At the Launch stage, a company is 100% focus is on setting up accounts for the big four (LinkedInFacebookTwitter and YouTube). Some companies focus on the big four plus others such as Flickr, e-newsletters, blogs, SlideShare and other social media platforms. But most companies get off the mark very quickly by venturing into the big four networks purely and simply to create their social media presence. The primary objective is simply to get started.

The approach at this stage is very executional without much planning for the long-term. The campaign is at an infant state therefore the results are negligible. Obviously the company can now claim to have a social media campaign but you will not really see much traction until the next stage.

At this stage, approximately 60% of a campaign is focused on the big four (or the big four plus others). Roughly 10% of the focus is on creative and offer development, 20% on tracking quantitative metrics such as traffic, inbound links, Facebook “Likes,” etc., and another 10% on qualitative metrics such as the brand’s sentiment analysis, survey results and customer polls.

The approach during the Management stage is still very tactical with the focus on mid-term results which is an improvement over Stage 1. The whole idea at this stage is to engage prospects and customers in one way or another to connect with the brand. Ideally, this would mean buying one of your products, but it could also mean downloading a file, “Like” a Facebook page or any other quantifiable evidence showing that they are connecting with your brand.

Stage 2 is where many of the big companies find themselves at right now. They are  in the process of managing their social presence, testing new ideas, tracking quantitative metrics and analyzing qualitative data to see how the campaign has been faring.

In the final stage, about 25% of the focus is on the big four and about 30% is evenly split among creative and offer development, quantitative metrics and qualitative metrics. Another 25% of a company’s focus is on improving conversion and optimization of the campaign.

It’s all about tracking inbound leads and traffic across social media platforms, using tools such as Google AnalyticsALTASand DARTS to track those statistics and watch those leads turn into your customers. It also means testing your way to success with social media campaigns: e.g. comparing 2 different landing pages to see which one drives more clicks.

The final 20% of a company’s efforts in Stage 3 includes measuring of ROI for the social media campaign. This process requires an understanding of your Customer Lifetime Value (CLV) – “the amount of revenue a customer will bring to your company over the course of their lifetime with your brand” and comparing it to the results generated by your social media campaign.

For example, if a typical customer spends $5 per month with your company and remains loyal to your brand for an average of 2 years, your CLV is $120 (24 months x $5). Most companies are happy to part with 10% of their CLV to obtain a new customer.

This means that they’ll spend $12 to acquire a new customer who will spend $120 during his or her engagement period with the brand. If your social media campaign’s expenditure costs $12,000 annually and its capable of  generating 1,000 new customers each year, you know you’ve got an ace up your sleeves.

Final thoughts

As Jamie said:

In the end, all roads should lead to social media ROI. After all, businesses don’t do social media to be social, they do social media to grow sales and revenues.

If you carefully navigate your way through Stage 1, Stage 2 and Stage 3, you’ll eventually be able to go up to your CFO and say, “Hey, Chief Financial Dude, remember when you told me we wouldn’t be able to measure the ROI of our social media campaigns? Well, we’re already doing it, and we’re making a profit, you knucklehead. So there!”

It is a daunting to task to put a dollar figure on your social media campaign. You can find many different ways of calculating ROI on the internet and most of them require a considerable amount of effort to collect data and statistics to measure the success of your social media campaign.

Today’s post presents a perspective on the monetary side of things. Early adaptations of social media ROI included terms such as Return on Engagement and Return on Participation that addresses the socialization of media, marketing, and the resulting dynamics of engagement. There are times where it “ain’t all about the money”.

Collaboration among your employees facilitate knowledge sharing and retention. It can improve the way they work and improve your day-day business processes and generate new innovative ideas for problem solving but the big question mark still remains: how do you put a price tag on something that is as intangible as this?

Here are some links and references:

I will end today’s post with a video on social media ROI. Til next week people! 🙂