The Limits Of Calculating Social Media ROI

Before you spend time trying to calculate social media ROI, ask yourself one very important question:

What purpose does the ROI serve?

The reason you want to ask this question first is to determine what to include in the ROI.

Without a clear answer to this question, you risk entering into an Alice In Wonderland world that becomes more and more complicated as your journey progresses.

You might begin with a simple formula. Say, new Facebook fan acquisition in return for your Facebook investment. Very simple formula.

And then your boss asks, “What’s the value of a Facebook fan?”, opening up another rabbit hole. You take your total number of fans and divided that into the total amount of donations collected through Facebook (assuming you can even figure out what that number is).

This opens up about six more rabbit holes:

  1. How many of our Facebook fans donated in response to a direct mail piece, but were influenced by the Facebook community?
  2. How many donations came from Facebook from users who were influenced by a Page connection even though they weren’t a connection themselves?
  3. What about Facebook fans who donate at an event they were invited to via Facebook?
  4. What about Facebook fans who don’t donate money but volunteer their time?
  5. What’s the lifetime value of a connection’s influence on Facebook?
  6. Should we place a higher value on a fan that has 1,500 friends as opposed to a fan that has 30 friends?

Don’t get me wrong, definitely try to calculate the value of a Facebook fan. Just know that the number will be a moving target. It will also vary depending on your organizational goals.

But let’s get back to our question:

What will you do with the results?

If your reason for calculating social media ROI is to justify using social media in the first place, don’t waste your time. There are way too many factors that determine success or failure.

For example, if the people who are updating Facebook and Twitter have no interest or passion for your cause, it will be a failure. And how can you calculate passion with a spreadsheet anyhow?

The return you get from using social media has more to do with how you use it rather than the medium itself. Trying to justify using it is no different from trying to justify using a telephone to create better relationships with your donors.

ROI as a learning tool

If you’re doing an ROI analysis with the goal of improving your use of social media, the calculation is much easier. Simply agree on a few variables, like email acquisition or Facebook fan growth – something simple, but quantifiable – and commit to those measurements during a single event. This way you spend more time getting results and less time snaking your way around rabbit holes.

Cause the last thing you want to spend time on is an ROI analysis of your ROI.

But what do you think?

What’s the best way to approach social media ROI?

And how would you improve this ROI calculator (feel free to edit)?

Comments

  1. Great question,

    You got me thinking like your photo below this

    My opinion? Go back to basics. They should ask themselves “what are my goals?”
    eg: To get more people to sign up for newsletter.

    From there its easier, if they use facebook ads, they'll get the amount that the spent and start calculate per head, CTR for ads etc etc =)

  2. Great post John.
    While it's important to have goals, sometimes within the social media space it's hard to make some of those goals actually quantifiable.
    I'm a big believer in the power of communities. I think if you have a goal of getting XX number of followers, you're at least taking a step towards creating this community, and it's this community that will help your bottom line in some way or another.
    Keeping it simple is a great way to go here.

    Cheers,

    Sheldon, community manager for Sysomos

  3. Like the “keep it basic” comment above – you should determine what it is you want to happen, then direct the community in that direction. Ask yourself, did it work or not? Also, direct them to something tangible where you do know the value because it's a traditional measure (refer a friend, etc.). Good community management is the key to whatever outcome/ROI you seek.

  4. I agree with the comments written about focusing on one result (e.g. newsletter sign ups, facebook friends, comments on your blog, etc). The reason is because, like was stated in the post, there are many other little factors/stats that you might analyze, and from those, more will come up. Once you're analyzing those at the 3rd level, you've already lost track of what you were trying to accomplish.

    Social media can provide a big range of benefits. Social media can increase brand awareness, revenue, member growth, customer service satisfaction, etc. Think about your company's goals and create a strategy to accomplish them.

    1. My MO for beginners is 1) Keep it simple, 2) Focus on attainable goals (don't try and stretch the first time), 3) Take action, 4) Measure the results, 5) Give yourself a big hi-five, 6) Do it again.

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  6. I think you need to get out of my head. Did we have the preamble to this post? :-)

    For starters, I disagree with your statement that it's not possible to justify using social media in the first place. In fact, focusing on tactical goals like newsletter sign ups is a part of that discussion and the starting point of the analysis process. But it also connects into the question of why you're marketing in the first place.

    You have to have a data-driven model that adds the “so what” into the mix. So you got 1200 new people from the cute tab you added on Facebook — so what? Well, by effectively tracking and tagging those people on your outbound efforts, you can now see that they are responsive to your advocacy actions but no so much on the donation side [yet]. That means you focus your social media efforts towards advocacy rather than treating it as a fundraising vehicle, etc. But it starts with setting up effective and efficient tracking.

    I even disagree that you can't measure passion within a community space. IMO there's a relationship between a community manager's engagement and the vibrancy of the community itself. You can see it on the 10 gazillion FB pages. How many have apathetic posts that are all “me-oriented” with 0 comments from the community? How many blogs are out there with no comments? Now, what about that community that rocks? It has a definite voice and tempo. You get out what you invest. And all of those stats are reportable.

    Whew…okay, I'll put my soapbox back under my desk.

    1. Jeff – you are awesome! Seriously. Your comment is helping me to better clarify for myself the role of social media ROI.

      Now… for starters, I never said “it's not possible to justify using social media”. I simply said “don't waste your time”, meaning instead questioning if you should use social media or not (ie red light / green light), go into it understanding that your ROI numbers will most likely be poor because you won't execute fabulously the first time. Again, the fundemental question behind doing ROI is critical. “Should we be using Facebook?” is a useless question for an org who's done nothing with social media in the first place. “How can we use Facebook to achieve these specific business goals?” is better.

      So instead of seeking to justify the media, seek to learn through experimentation. That's how I think ROI should be approached. For example, “Boss? I have a hypothesis that if we use Facebook in the way I've outlined, we should get a worthy return. Let's do a pilot with a limited budget and then go from there. OK?” Hopefully the boss trusts you enough to take a small gamble with you.

      Data-driven model all the way – big thumbs up!

      Finally, when I said “And how can you calculate passion with a spreadsheet anyhow?”, I meant that the spirit of the community manager can't be plugged into the “I” column (=Hourly Rate*Number Of Hours*Passion). However, as you point out, the effects of passion can (voice and tempo).

      Keep the soapbox out – because I have two questions for you: How can nonprofits who are green with social media (meaning beginners) use ROI methodology so that it empowers them? How can they avoid getting tangled in the ROI weeds?

      John

      1. For me, using ROI is tracking what's important, not tracking everything. So the first question I ask is, what question[s] are you trying to answer? If you don't know what you're trying to answer, then data isn't helpful. You'll either gather insufficient data or worse, gather wrong/unhelpful data.

        Data overkill is a big snare and a tough balance. I see insane levels of tracking that is done because “someone might need that info at some time.” It becomes such a daunting challenge tracking the tracking that there's no time to review anything. You end up with hundreds of sources that are like “facebook_July1″ “facebook_July2″ when all you really need to know is “facebook” because we need to justify spending time building that community.

        The second question I ask is what's the point/purpose of what we're doing? I think Jamie touches on this a little below. It's about determining the value your customer provides to you. It could be donations, but there are other goals like taking action, too. I'm not big on the “share of conversation” metric, though. That's a little fluffy for my needs.

        Anyway, I have specific targets for my metrics so I know when they're improving. There are a lot of benchmarking surveys available for nonprofit marketing that cover mostly email response rates for both advocacy and fundraising but also average one-time donations, etc. It's a good place to start.

        1. Data overkill is a common snare. I've seen it many, many times. I like how you said “tracking the tracking”. It makes one want to do an ROI of an ROI process. ;-)

  7. Hi, John and everyone else. It's great to see such an active and engaged community on your blog. Bravo.

    Social media measurement is the big topic these days. Since most of your readers are from the non-profit world, they're probably familiar with Customer Lifetime Value, which is essentially the amount of net revenue a customer will bring to your business over the lifetime of their engagement with your company.

    Once you know your CLV, you can start calculating how much you should budget for acquiring a customer.

    As an example, if you're a cable company and your average customer spends $100 per month with you and stays 2.5 years, then your CLV is $3,000. Your allowable cost per acquisition would be $300.

    If you measure your social media campaigns properly — tracking inbound traffic and conversions — then you can calculate the effectiveness of your campaign.

    If your readers would like to hear more about how to measure a social media campaign, they can download a free chapter of my book, “How to Make Money with Social Media.”

    You can read about all the social media measurement formulas here:

    http://www.60SecondMarketer.com/FreeChapter

    Given the interest among your readers on this topic, I suspect they'll enjoy the chapter available above.

    Thanks for a great post and some great comments.

    Best,
    Jamie Turner
    The 60 Second Marketer and
    Founder of ASchoolBellRings.org

  8. My personal view on parsing ROI by analyzing every little detail is that it's not as useful as people make it out to be. John, haven't you said that one rule of social media is to “Let Go”? I fully appreciate that analytics do help, but after a certain point, you spend more time, braincells, and sleepless nights calculating the minute details when in reality the payoff doesn't warrant that. I would support a looser approach – a sort of positivism: set a range for success, rather than a specific number. Make the range wide, and whenever your numbers fall anywhere in that range, celebrate (yes, with a big high five). If the numbers are too small, figure out why; if they're larger than expected, great but don't expect them to stay that way (until it happens three or four times). And of course, improve your ideal range appropriately over time (oh yeah, still track those specific numbers).

    I know that seems like a lazy approach for larger organizations, but they have the manpower to do more – I'm talking in terms of the smaller nonprofits who maybe have two social media interns if they're lucky. If you're just starting out, you don't need the extreme details – you just need to know that it's working.

    Another term you used was “Release the Hounds” and I want to stress the fact no one can use analytics to track everything everyone says about you on every social platform (including the real world). One of my favorite social media quotes is “If you are online, you are using social media.” (Universal McCain Comparative Study on Social Media Trends, 2008) – even if you're not trying, someone is talking about you somewhere else.

    I'm not saying that calculating the value of a Facebook fan isn't worth doing – it's incredibly important, but we just can't do it yet.

    Thanks for a great article and some wonderful posts!

    Matthew

    1. Thanks, Matthew. I appreciate you stopping by! I'm all for ROI – it's critical as a learning tool and as a demonstration of success. But if it impedes results, then not so much. I think there's a middle way to be found between too much ROI and not enough ROI – and that all depends upon the organizations goals.

  9. Once again you're reading my mind, John. I think it's important for small non-profits — for anyone trying to use social media to accomplish a goal — to keep track of whether they're making progress or totally wasting their time, because otherwise there's no way to know if it's time to shift tactics, but… at some point you've got to wonder, what's the ROI on time spent calculating your ROI?