Measure ROI

What are 3 different methods to measure ROI (Return on Investment) of social media marketing? What are the pro’s and con’s of each?

Social Media is a new field in the Marketing. It grows and grows.

But for companies, the most important things are to reach their goals and to make money. So the question is, if Social Media does help companies to make efforts and how this effort can be measured?

ROI = Return on Investment

Normally the ROI can only be measured with concrete money amounts:

ROI = (Gain from Investment – Cost of investment)/ Cost of Investment

But in Social Media this calculation is not possible! Because of that, we have to think of other measurements.

Things happen in sequence:

A company invests, then an action takes place, after it the customers should react and because of that there rises a non-financial impact, which should lead to a financial impact afterwards.

During the action, till the non-financial impact, there is no ROI. It is only measureable from the investment to the financial impact. So we have to find out, how we can make these things measurable and which methods are good and which are not that expressive.

Method 1: Establish a baseline

One thing that can measure something similar like the ROI is a baseline, where you compare the Growth Rates. For example, before the beginning of Social Media Markting in a company, the Growth Rate was 8% from Jan-Mai. But in June, Social Media was introduced and now the Growth Rate from Jun-Dec was 50%. Because of this comparison, we can see, that because of the introduction of Social Media, the Growth Rate improved.

Pro’s: Based on this comparison, you can see, that the Growth Rate can show, if there is an effort because of Social Media. Growth Rates are also measureable and can be compared from year to year.

Con’s: Another disturbing factor is, that you do not know, if the Growth Rate only got better because of Social Media. Perhaps your products also got better or your competitors got worse. You cannot see the directly dependence between the two.

Method 2: Look at the transactions

A second point to measure the ROI from Social Media is to look at the transactions. Transactions should be specific:

F.R.Y. = Frequency, Reach, Yield

1. How often customers transact? (Transaction per month9

2. How many customers are reaching? (Net new customers)

3. How much they spend? ($ per transaction)

So after new Social Media Marketing Strategies, you can see if there is a change in one of the 3 points mentioned before. When the $ amount per transaction grows and also new customers buy our things, then this is an effort, which is measureable. But it is always important to make a baseline, to see the differences.

Pro’s: More transactions, more new customers and more $ amount per transaction show very clearly, that a new strategy has helped the company to get better. When you set a baseline, then the difference is viewable and also measureable.

Con’s: Like in Method 1, you cannot exactly say, where the new customers come from for example. Is it because of the new Social Media Strategy or is it because the products got better or cheaper. So you can never say exactly, where the differences come from.

Method 3: Measure mentions

The third of the three methods is the measurement of mentions. You know that there are several ones, like the positive ones, where customers talk good about your brand and negative ones, where they do not like something and talk about their complaint. Mentions are not always helpful, only if they are positive for your company. You can measure they different mentions (positive and negative ones) and compare them to the mentions before your Social Media Strategy. When positive mentions had grown, you know that your customers like your products, if negative mentions are grown, you know, that you have to change something.

Pro’s: Positive mentions are growing, when people like your brand and products. If you have a new strategy and since this point in time the positive mentions are growing and the negative ones are reducing, that you make an effort.

Con’s: Like in Method 1 and 2, you never know why your positive mentions grow. Was it the warm summer and you sell ice-cream or was it because of your perfect marketing strategy?

à You never know, why customers prefer buying your products instead of others. You can only asked them, listen to their comments and try to find it out after a while. Normally it is not that difficult, because companies have a specific Marketing Method and are trying to improve this one. But it stays always difficult to measure things, which are not tangible.