I get the question of calculating Social Media Marketing ROI quite often and I’ve written about many of them on my Marketing Calculator blog at https://prorelevant.com/the-marketing-calculator-blog/. My partner and I, Steven Groves, also wrote a book, ROI of Social Media which describes many of the nuances in calculating the ROI of Social Media using the methods described more fully in my Marketing Calculator book. There are many social media professionals that answer this question with a false vanity ROI, but a true answer can only be generated with the proper analysis and understanding of the application of the various methods and concepts required.
Essentially there are three ways, but there is a lot of nuance in addition that must be considered. Let’s first talk about the three methods.
Definition of a message
Before we go into these methods, I want to define a term, called message. It is the basic unit of advertising. Often used interchangeably, it is slightly different from an impression, because the message is what the consumer experiences in the market, whereas an impression is what the manufacturer inserts, e.g., purchased 1m display ad impressions. I am defining a message as any text, image, audio, video or scent referring specifically to the brand being promoted. A message could be a blog post, a face-to-face mention (if these still happenJ) a display ad, a search ad or a television commercial. Typically, messages can generate awareness, purchase intent or relevance or all of the above, depending on the quality of their creative.
Three Popular Measures of Media Impact and ROI
Last Touch Attribution – Marketers can include in social media messaging (either paid, or organic) response codes or they can direct browsers to specific landing pages with appropriate tags so that the company can track the purchases made directly off of the message. This is a reasonable method but does have inaccuracies associated with it. For example, it doesn’t include those consumers that see the ad and become aware but purchase at some later date without using the response code. Or it ignores the impact of consumers seeing a TV advertisement, and then clicking on a link in a Facebook post. These are the challenges using the Last Touch Attribution methodology in that it ignores the impact of any other non-direct response made by the consumer.
Experimental Design – Marketers can set up a test where an ad is run with one social audience but not another. In this way the difference in sales between the two audiences represent the value of the ad. This is also a reasonable method but also has its challenges. For example, what if the purchase cycle lasts longer than a week? What if there aren’t enough clickthrus to calculate a statistically significant answer? What if there is other advertising running in parallel with the social media ad that can’t be properly controlled for?
Marketing Mix Modeling – Probably the best method is a form of Marketing Mix Modeling where a statistical or agent-based model is developed that can overcome many of the disadvantages of the above two methods. Agent-based modeling includes the brand equity or brand relevance value of the ad, but both can accurately determine the value of the social message and separate the impact from the effects of other media channels.
The methods are limited only by the available data, the true definition of the business question and the depth required for the analysis
Calculating Marketing ROI
Each of these methods provides the value of the media activity, but then a few simple further calculations can calculate the ROI. In this way a dollar for dollar comparison can be made between the impact of one channel over another.
ROI is defined as Return (in profit) due to the investment. Although many other writers will provide other definitions, these are generally only partially helpful and can also lead you astray in making bad marketing decisions. There are many sources of the way to calculate ROI due to advertising. Here is one.
Uses of Social Media Marketing ROI
Social Media Marketing ROI is meaningless unless it is put into context. Is a Social Media ROI of 225% good or bad? On the surface it looks good, but what if digital display advertising had an ROI of 325%? What if TV had an ROI of 175%? What would be the proper course of action? Social Media can deliver a great ROI, but it may mean that the overall budget allocations should be adjusted. It probably makes sense in the given scenario to increase spend on display advertising, possibly increase (but also possibly decrease) investment on social and reduce the investment in TV. Only when the Social Media Marketing ROI is delivered in context can the right budget allocation decisions be made.
Social Media Marketing ROI can also properly determine whether more should be invested in one channel over another, e.g., Facebook v. Twitter v. Instagram, whether organic is better than paid or whether one campaign creative concept is better than another. Only an in depth analysis of social media marketing ROI and effectiveness in context of everything else and at the appropriate level of detail can support the marketer in making the right allocation decisions between social media channels, creative concepts and paid versus organic.
Social Media Marketing and Agile Marketing
Social media marketing is also an important element of agile marketing. There are a number of definitions of agile marketing but we define agile marketing as allowing marketers to track marketing success on a weekly or 4-weekly basis and then to project success out in to the future (e.g., 1 quarter) based on all available market intelligence. In this way the marketing team can make the best decisions to determine success and then respond to the market as quickly as possible in order to generate the best success in an uncertain and dynamic market.
Social media is one channel, both paid and organic, where the marketer can quickly react and test various solutions so as to further optimize their presence in the marketplace.
Upcoming Online Marketing ROI and Analytics Workshop
Hope you find this discussion useful. Feel free to reach out if you have any questions. I did want to let you know that we have some great analytics and training available that can provide much more detail on these and other applications of online marketing ROI and Effectiveness.