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Social Media ROI

“What is the ROI (return on investment) of social media?”. Increasingly, businesses are seeking to validate and measure the benefits that can be delivered by investment in social media. Pure financial metrics are only one way to measure the success of social media marketing. Social media delivers a range of benefits to businesses (and other organisations), in the short term and long term, both quantitative and qualitative.

Major brands are making (and saving) plentiful money in social media: Dell has generated millions using Twitter, Intel have reduced costs by replacing in-person events with online alternatives, and P&G demonstrated that their online community BeingGirl.com operates more effectively in driving sales than their TV ads.

Though some marketers can directly correlate investments in social media to financial results, many others cannot. Not because social media is not effective marketing, but that the benefits of engaging in social media marketing extend well beyond sales and profits. Facebook fans, content retweets, site traffic, video views, positive reviews and lively communities are not assests measured in dollars, don’t appear on a balance sheet or contribute to an income statement. But they are far from valueless. Rather, all these metrics are clear indicators of value creation that should lead to financial returns in the future.

Effective social media ROI measurement considers metrics from four distinct perspectives:

Financial: Have revenues or profits increased, or costs of business decreased?
Branding: Has brand visibility increased, and/or have attitudes towards the brand improved?
Reputation & Risk: Is the business better prepared to identify and respond to attacks or problems negatively affecting reputation?
Real Estate: Have online assets (communities, websites, traffic, etc) been enhanced or expanded?

Businesses who seek to measure ROI in fewer than all four of these areas are unable to effectively make decisions about social media investment, due to an incomplete picture of results. It is only by acknowledging (and where possible measuring) all of the diverse benefits delivered by social media marketing that the true ROI of social media can be fully understood.