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Think Bottom Line, Not Top Line, on Social Media ROI

Authors: Jay Baer Jay Baer
Posted Under: Social Media
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There’s been a lot of conversation lately about social media ROI but the hand-wringing about it is totally misplaced.

True ROI (return on investment) calculations are possible in cause/effect marketing scenarios where you can isolate tactics and variables to determine incremental revenue generated. Today, the only marketing programs that can semi-reliably generate “real” ROI calculations are SEO, PPC, email marketing, banner ads, and in some cases direct mail. Even these programs can only generate decent ROI calculations for e-commerce or lead generation.

Social media is anything but cause/effect. It’s by definition amorphous and circumstantial, and because it’s a two-way conversation rather than unilateral shouting, the customers control the frequency and intensity of the message in a way that they do not elsewhere.

Thus, true ROI measures a la SEO, PPC and their brethren are not possible for social media.

But, guess which other tactics suffer from fuzzy ROI calculations? TV. Radio. Print. Out-of-home. Public Relations. Event Sponsorship. Sky Writing. Paying People to Tattoo Their Bodies With Your Logo. Of course, being new and experimental and scary to many executives means that social media needs to prove its mettle more so than TV…

And that mettle can be proved, if you completely change how you think about social media. 

It’s About Customer Service, Not Sales

Almost universally, the concept of “ROI” is rooted in customer acquisition, and is comprised of these 3 questions:

  • How many new customers did we reach via this tactic?
  • What did they spend, or what are they likely to spend?
  • How does that revenue compare with what it cost us to create and distribute the message?
All of these conversations revolve around revenue generation. And revenue generation is NOT the best use of social media. Social media is better utilized as a manifestation of a corporate culture that respects and serves its customer, rather than as a new way to market the brand.
Social media is about creating repeat customers, not acquiring first-time customers. 
Consequently, your ROI analysis needs to focus on social media’s ability to turn customers into fans. Potential social media ROI calculations include:
  • Points of Light. Measure revenue generated from customers that you have engaged with in social media. Fiskars could do this (and they may be) by measuring scissor sales among customers registered to use the Fiskateers Web site
  • Lifetime Value. Measure average order frequency and annualized total purchases before and after your social media program launches. This necessitates some pre-social media measurement to set a baseline. 
  • Loyalty. Measure churn. How many customers quit you, and how much did that volume diminish after you started in social media? Comcast could do this (and they may be) to measure the impact of @comcastcares and their other outreach efforts.
  • Operations. A dollar saved is a dollar earned. How much have your expensive inbound customer service calls dropped since you started social media? (again, a good one for Comcast)
All of these metrics can prove actual ROI as long as you focus on the bottom line (loyalty and profit) and not the top line (new customer acquisition).

How Can You Measure Bottom Line ROI for Social Media in Your Organization? Leave a Comment With Your Ideas, Please.

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