“The problem with trying to determine ROI for social media is you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable” (Fall, 2008).
Conventionally, businesses would use marketing metrics such as market share and sales volume to calculate the return on investment (ROI) and thus measure the success of their marketing campaign (Gruca and Rego, 2005):
Return on investment can be calculated by:
ROI= Earnings – Initial Investment
Initial Investment
The rise in popularity of social media has called for marketers to include social media in their digital strategies. However, using social media presents a fundamental problem when attempting to calculate ROI (in monetary terms). Where performance and ROI would traditionally be calculated from the monetary revenue earned from the campaign; social media requires no initial investment (Blanchard, 2011) and the precise monetary return of the campaign can be very difficult to calculate. This therefore presents a problem in using the traditional equation above to calculate ROI. Uitz (2012) explains that managers that use social media in their strategies often do not have any knowledge into the precise financial returns of the marketing initiative. Therefore this proposes a problem for marketing teams. How can they measure the success and effectiveness of their social media brand marketing campaign?
There are accurate metrics that can measure the non-financial impact of your social media strategy and thus can provide an insight into the overall effectiveness of your campaign (Petersen et al., 2009; Seggie, Cavusgil and Phelan, 2007 cited in Uitz, 2012). These metrics are coined key performance indicators (KPI’s). Gelles (2013) theorises that due to the absence in precise ROI measurement, KPI’s can provide an understanding for marketers into how effective their social media strategy is.
Click here to view 50 KPI’s used in Digital Marketing! (Ireland, 2014)
Hoffmann and Fodor (2010) provide three ultimate aims of a social media campaign:
- Brand Awareness – How many people is your brand message reaching?
- Brand Engagement – How loyal and committed are your reach to your brand?
- Electronic Word of Mouth (EWOM) – Are your engaged and committed consumers passing on opinion to others?
Where measuring the attainment of these aims can be difficult, the level at which the campaign achieves each of these aims can be measured through the use of certain KPI’s outlined by Hoffman and Fodor (2010); Rains (2010); Murdough (2009):
Click image to enlarge:
For brands, attempting to calculate ROI from a social media campaign can be a difficult task. Through the use of KPI’s brands can monitor the effectiveness and impact of their campaign without the need for explicit monetary returns to measure success.
References:
- Blanchard, O. (2011). Social media ROI. Indianapolis, Ind.: Que.
- Fall, J. (2008) “What Is the ROI for Social Media?,” [Online]. Available at: http://www.socialmediaexplorer.com/social -media-marketing/what-is-the-roi-for-social- media/ [Accessed April 15, 2015]
- Gelles, S. (2013), “What Are the KPIs for Brand Marketing in Social Media?”, EContent, 36 (4), pp. 21.
- Gruca, T. S. & Rego, L. L. (2005). “Customer Satisfaction, Cash Flow, and Shareholder Value,” Journal of Marketing, 69 (3), pp.1−18.
- Hoffman, D. L. & Fodor, M. (2010). “Can You Measure the ROI of Your Social Media Marketing?,” MIT Sloan Management Review, Fall 2010, Vol. 52, pp.41-49.
- Ireland, E. (2014). 50 Digital Marketing KPIs. [online] Available at: http://www.digitalcurrent.com/digital-marketing/50-digital-marketing-kpis/ [Accessed 15 Apr. 2015].
- Murdough, C. (2009). Social Media Measurement. Journal of Interactive Advertising, 10(1), pp.94-99.
- Petersen, J. A., McAlister, L., Reibstein, D. J., Winer, R. S., Kumar, V. & Atkinson, G. (2009). “Choosing the Right Metrics to Maximize Profitability and Shareholder Value,” Journal of Retailing, 85 (1), pp.95−111.
- Rains, A. (2012). What are Social Media KPI’s?. [online] Available at: http://www.socialmediatoday.com/content/what-are-social-media-kpis [Accessed 15 Apr. 2015].
- Seggie, S. H., Cavusgil, E. & Phelan, S. E. (2007). “Measurement of Return on Marketing Investment: A Conceptual Framework and the Future of Marketing Metrics,” Industrial Marketing Management, 36 (6), pp.834−841.
- Uitz, I. (2012). Social Media – Is It Worth The Trouble?. Journal of Internet Social Networking & Virtual Communities, pp.1-14.