The How and Why of Social Media ROI: Part 1

Another of my articles from work. It’s very industry focused. 

Determining the value of social media marketing efforts is one of our industry’s most discussed issues. Surprisingly, many marketers still seem unconvinced of the importance of capitalizing on social media as a marketing channel.

At its core, this discussion is all about determining the ROI of social media.

ROI – Return on Investment

The term “ROI” or “return on investment” references the profit made from a given expenditure. In other words, it’s the amount of money you make in respect to the amount of money you spend.

money-falling-from-sky

Calculating an ROI is deceivingly simple. Start with a given return, R, and divide that by the total investment, I. Then, multiply I by 100 to formulate a percentage. The formula looks something like this:

ROI = (R/I x 100)

An ROI above 100 means you’re making money, whereas an ROI below 100 means you’re losing money. This is marketing 101, and it sounds very simple.

It’s Not That Simple

While an ROI is relatively easy to calculate, generating the numbers and determining the attribution involved within the ROI calculation is exceedingly difficult—especially in regards to social media. Social isn’t a direct response channel. Most of the content social media marketers publish is about generating engagement with customers. Most posted links don’t even link back to a company’s main site. As a result, social media is rarely the last touch in the sales funnel. That means it is very difficult to attribute social media efforts to the total sum of a return (or the “R” in an ROI calculation).

And Then There’s Google

Google analytics tracks visits by site referrers, or the sites that “referred” the visitors to your site. For example, if you Google “AREA203” and then click on the link to AREA203.com, Google.com will appear as the referrer for the session. This analytic method doesn’t work with social media for two reasons:

1. The Technical Issue

The Internet is now consumable in many ways, including mobile devices, desktop applications like TweetDeck, email providers like Outlook, and IM chat programs like AIM. Applications like these, or specifically nonbrowser based applications, do not pass web referrer data.

If a user were to follow a link through TweetDeck, the analytics for that transaction would show a direct visit. In other words, analytics would show that the user visiting the site did so by typing in the URL directly instead of clicking on a link in TweetDeck.

2. Culture

Society is becoming increasingly automated. In February of 2012, Facebook reported 100 million active mobile users. By July, that number jumped to 150 million. That’s 50 million new mobile users in less than six months. That is 50 million mobile users who will never pass along referral traffic if they interact with any form of social media marketing.

Avinash Kaushik, analytics evangelist for Google, claims that 78% of people consume social media via mobile and desktop applications. Four out of five users read branded content that will never pass along referrer information.

Are you starting to see why determining the ROI for social media is, to put it simply, really difficult?

A Working Solution

Social media provides an amazing opportunity to cultivate relationships with customers—relationships that clearly drive conversions and repeat business. Social media is a valuable marketing tool. At this point, it would be silly to argue anything else.

But how do you quantify that value? Come back and read “The How and Why of Social Media ROI: Part 2” to find out.

 David Pemberton, Editor, Social Media + PR, AREA203 Digital; follow… @Dave_Your_Fave

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s