Social Return on InvestmentHow do we calculate social return on investment?
Social media has many challenges as it relates to determining the social return on investment. Many individuals, instead of using return on investment use a measure of return on influence. Unfortunately, this measure isn’t necessarily the best approach for determining return on investment. It is sometimes used as a proxy for social return on investment. If the objective of a specific media campaign is to recruit influencers and then determine which influencers deliver the best engagement for the brand, then return on influence is a reasonably good proxy for the success against that objective. Unfortunately, it is not a good estimate for the social return on investment.
Social Return on Investment Calculation
The calculation for social return on investment is the same as any return on investment calculation. It requires determining and calculating the returns due to the investments in social media. It is the total returns in terms of profit, divided by the investment in dollars minus 1 times 100%. The challenges to implementing this calculation are below.
Challenges in Calculating Social Return on Investment
The biggest challenge calculating social return on investment is the determination of the actual returns in incremental volume and profit directly attributable to a specific social marketing activity. The problem is that social media doesn’t necessarily generate direct returns. It delivers fans, likes, comments and shares. A good proxy for success in social media is to determine the level of engagement or the number of interactions generated by a specific social media campaign. These can then be linked to actual incremental sales and profits.
Social Return on Investment: Linking interactions to incremental revenue
This linkage can be determined in a number of ways, by developing a model of this interconnection. We use agent-based modeling to make this connection, by including both the value of the brand and the direct response generated by the media. Other statistical methods can also be used.
Social Return on Investment: Allocating the investments to the social media activity
Sometimes it is also difficult to calculate the investment side of the social return on investment. This is because it can be a mix of fixed costs, such as personnel, and variable costs. In this case, the social marketer should consult with their internal financial analyst to appropriately allocate the investment costs to a specific media channel.
Contact Brand Strategy Experts
Contact us to learn more about ProRelevant.