Any chimp with basic excel training can measure return on investment in Social Media. It’s not brain surgery. In fact, if you’ve ever purchased or monitored advertising in the past, it’s the same formula. The problem with Social Media is that everyone wants to fragment things into micro-vessels that they forget the big picture – it’s all still part of a marketing bucket.
If you sell anything, you (hopefully) have profit. But profit itself costs money. From inventory to rent to payroll to advertising, etc. – these are the investments needed to turn a profit. Most people focus on marketing and advertising as the main drivers of ROI. Sometimes they’re proportionate, sometimes they’re not. It all depends on the tactics. And in Social Media, that’s what we’re really trying to figure out – which tactics turn the best profit. But really, that’s like asking whether TV, print, radio or direct marketing works for a specific industry. Every business is different. All audiences consume media differently. But advertising is part of the marketing bucket, which is part of the investment bucket that you remove from profit to determine ROI.
Let’s say you sell radios. Last year you sold $15 million in radios. Your investment to generate those sales came to $10 million and $2 million of this was spent on your advertising. Traditionally you’d monitor each of your advertising tactics to measure their success as juxtaposed against the overall sales over a period of time. After you’ve developed a relevant sample, you begin to see which tactics work. Then, naturally, you allocate more of your investment to those tactics that yield the most return.
The same thing applies in Social Media. Except, we don’t have decades of traditionalism to work from here. New vehicles to reach your constituency appear on the scene every month, as well as new mediums to engage them and new tools to track them.
So what do you do? The best you can, that’s what. Let’s say your radio company hires an ad agency to run your SM project for six months. The agency can recommend tactics, implement those tactics, and then monitor them with a range of tracking analytics to see which generate the most traffic or buzz or impressions or whatever – but the bottom line is still the sales. Eventually the tactics must be overlaid onto the sales to see which ones have the most impact. At some point the people who understand ROI will determine which tactics are most valuable to the company – and budgets (investments) are pushed into those areas for further development.
Yes, Social Media is a whole new way to advertise, communicate, engage and in some cases gouge a market –but when bottom lines are concerned, it’s still just good ol’ fashioned math.