ROI (return on investment) is completely misunderstood when it comes to social media marketing. This whole thought process started when I read this quote from Justin Rees at Econsultancy, which sums up the issue nicely:
“While there are already many companies doing great things with social media around customer service and analytics, the elephant in the room is still whether social can generate material ROI in the form of leads and sales.”
Here is the issue – social media creates a bit of a minefield when it comes to calculating ROI, and according to a study, brands are starting to move away from it anyway.
Realistically, we can’t know how organic social posts and community management affects buying decisions. For example, someone like Cadbury can’t attach a particular tweet on a particular day to the fact I bought a flake at lunchtime, there are too many confounding variables that might have contributed to my decision to purchase.
For me it’s a fundamentally mathematical issue; if clients want to see a traditional ROI report, based on monetary values of investment and return, you’re not going to get that with social media. Even with social metrics that are measurable, you can’t attribute a monetary figure to a RT, a like, a share, a pin, a favourite, etc. Obviously these are all essential for any good evaluation, but there’s a difference between that and demonstrating ROI.
For example, let’s take a fake social campaign which ran just on Facebook. Your client spent £500 on Facebook sponsored stories, they acquired 7,000 new fans (and what an amiable cost per like that would be), had 2,500 competition entries and reached 500K people.
So what ROI have we got here? The client wants a ratio result, so £500:7,000 fans? ROI is 1300%? 1:13?
Well no…if you can’t attribute a monetary figure to these things, you can’t use traditional methods of calculating ROI. For one, the maths itself requires both variables (the R and the I) to be of the same unit. You’re just comparing apples and oranges.
So what’s been said already?
Googling ‘social media ROI’ brings up a fair array of articles and links on the matter. Apart from a few good reads like this and this, most of it fails to make any argument or offer up an adaption of the ROI formula.
My issue with a lot of the current literature – there’s a lot of talk of goals, appropriate social platforms, a couple of funnels (what is the obsession with funnels?!), all padded out with bright infographics. Okay we’ve got all that, but this is all sounding like a big blag that might come from this guy…
Don’t get me wrong, I’m not suggesting any of the above isn’t important to an overall social strategy, of course it is, but we haven’t actually had an answer to the ROI maths have we?
Not just social media is afflicted
Even something robustly measureable like PPC isn’t always exempt either.
Take my wonderful, but entirely fictitious, client WeLoveTools Ltd. They make high-spec spanners which can be bought directly through their website, and would like to do some PPC activity. The results:
- £500 spend, 200K impressions, CTR 1.5%, 3K clicks, 2% conversion rate, 60 spanners bought at £40 each
ROI = ([40*60]-500)/500)*100 = 380%
Amazing stuff, take that to the marketing director. But it’s only all fine and dandy if you have a client with an e-commerce set up, but what about if WeLoveTools decides to sell their spanners solely through distributors? Again we run £500 worth of PPC advertising, with the goal of driving brochure downloads. Great, so let’s work out the ROI by the same method:
- £500 spend, 200K impressions, CTR 1.5%, 3K clicks, 2% conversion rate, 60 brochures downloaded
ROI = ([???]-500)/500)*100 = ???
…and that’s where it stops, no more maths today (some might rejoice). What can you do? Get each distributor to ask customers; “Oh I see you’re purchasing a WeLoveTools spanner. Is that because you googled ‘spanner’, clicked on a WeLoveTools ad, downloaded the brochure and then decided to come into store to complete your purchasing journey?” Good luck with that one.
Ah, I hear you say, but it’s also about lead generation. Yes, completely agree, social media and PPC are both fantastic for lead generation, and getting 60 brochures downloaded is excellent, but that’s still not an ROI. You can’t argue you generated £50 worth of leads, you can have £50 worth of sales, but you can’t have £50 worth of leads. Leads are invaluable, but monetarily worthless.
A couple, and by no means exhaustive, of exemptions.
1) Facebook offers, let’s say for a restaurant, offering Facebook fans 20% food and drink. Downloaded vouchers with specific bar codes and amount spent attributed purely to these vouchers, and thus back to Facebook. Your cost is any ad spend, return is the till receipts. (Although, there is further argument to say you’d have to control for any guests who would have gone to the restaurant that night regardless, and include the profit loss on the meal into the costs, but only someone ridiculously pedantic would say that…)
2) The Heinz Get Well Soon Soup campaign always stands out as a great ROI example. A brilliant social campaign where you could buy and send someone a personalised can of soup. The operative word being buy – because through the Facebook app you could purchase one of these for £1.99. The number of cans sold directly through Facebook multiplied £1.99 is their return figure. Perfect.
On the whole, ROI is rarely an appropriate performance indicator for social media. Specifically planned campaigns, e-commerce sites and any direct financial responses aside, we all need to stop expecting we can always demonstrate a monetary ROI on social media. Brands are right to move away from it.