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Understanding ROI

Return on Investment

Contrary to popular beliefs, Social Media is not a FREE service for business. It takes People, Technology and Time. All of which are limited resources.

The Equation

The investment would be expected to be returned in many times more than the invested amount.

ROI = (Gain from investment - Cost of investment) / Cost of Investment 

In other words, if you invest 10 dollars on Social Media, and get back 50 dollars, your ROI is (50-10) / 10 = 4 times your initial investment.

Truth about ROI

ROI is a business metric, not a media metric. ROI is 100% media-agnostic. Therefore, it is safe to say that only measuring digital or social ROI would get your nowhere. Always remember that the decision of using Social Media as an advertising medium is because of 2 reasons.

Cost Reduction

Revenue Regeneration

Case Study

Company X shrank their PR budget by 30% and their outbound call budget by 40% in order to afford to pay a team of Social Media Team.

One month later, they started to have new visitors to their corporate website, a huge grow in their facebook fans list and started to get comments on their corporate blog. Their twitter network is also growing in a nice curve.

Three months later, the company’s Google Analytics are through the roof, their social media mentions are in a celestial number, and their viral videos on YouTube have reached 44 million views.

Six months later, the Social Media marketing team got fired.

Reason? The company is not seeing the results of the social media program. It is not generating revenue even though the social media program is a huge success. This is business we are talking about here, not media. The company manager, not convinced that Social Media does not work, employed a new experience team of Social Media gurus.

The Sequence

Investment > Action > Reaction > Non-Financial Impact > Financial Impact

Strictly speaking, Non-Financial Impact is not ROI, at least not yet.

Types of Non-Financial Impacts

1. Website Visitors
2. Impressions
3. Click-Throughs
4. Positive Press
5. YouTube Views
6. Google Analytic Scores
7. Facebook Friends
8. Twitter Followers
9. Social Mentions
10. Visitors to a Brick & Mortar Store

Back to Sequence

I’m not saying that whatever is between Investment and Financial Impact is not important. It is very important, but ROI do not live there. The investment-return relationship is only linked from Investment to Financial Impact, by passing the 3 in-between.

Businesses only measure ROI in the Financial Impact stage.

So now what?

Start with a concept proof.

1. Establish a baseline.
   Show a difference in how the company’s YoY growth have improved after implementing Social Media.
2. Create an Activity Timeline
   Show what the team did each week in regards to social media activities.
   E.G. Week 12 — (12/Jun/2010) Jess starts Tweeting

   Week 13 — (21/Jun/2010) Press Release, (22/Jun./2010) Podcast

   Week 14 — (2/Jul/2010) Singapore Workshop, (4/Jul/2010) #BlogChat Guest Spot
   
   
3. Look at Sales Revenues
   Request a sales revenue chart from the company and look at what causes sudden spikes in sales on what days.
E.G. there is a spike of sales on 22/Jun onwards until end of July before it drops for a bit. We can safely assume the spike in sales is due to the Podcast or the Press Release.
   
   
4. Look at the number of transactions
   You should also compare the number of transactions instead of just the value of revenue.
   
   
5. Measure net new customers
   Measure how many new customers are opening transactions.
   
   
6. Transaction data must be specific.
   Use the FRY approach. (Frequency, Reach, Yield)
How often customers transact (Transaction per month)
How many customers are you reaching (Net New Customers per month)
How much they spend ($ per Transaction)

End Results

The Social Media marketing team overlaid all their timelines and noticed that since their Social Media activities began, their website visits are up, their social mentions are also up and everyone seems to love the brand. Overlay all the timelines of activities, social data, web data, transactions & loyal metrics etc. You can look for patterns in the timelines that shows impacts. After that, it’s just a process of isolating patterns, quantifying deltas and ad-hocs and figure out the cost savings and revenue gains and then plug it into the equation. The key thing is to prove that Social Media works.

Designed to be Addictive

People loved watching a reality TV shows about people singing and dancing their way to fame.

Then we got Glee.

People loved books and movies about vampires, werewolves, and a chick.

Then we got True Blood. 

TV isn’t always creative, but at the same time it can still be very successful. I don’t watch any of any of these shows, but what made these shows successful after copying the general theme, was that they copied the emotion pull of what made their predecessor successful, then they cranked it emotionally.

Glee isn’t a show that reflects the experience of learning to sing and dance, it’s a show that makes an emotional connection between the audience with the unexpected stars who cover almost all the high school archetypes. After that, everything is a sensory overload of sight, sound, and emotion, and sex.

If you’ve read Brave New World, maybe you’ll recognize how this is similar to the Feelies from that story,

“…an entertainment form with an incredible level of sensation but with minimal substance.” - http://en.wikipedia.org/wiki/Feelie

Sounds a lot like junk food. And you know what the problem with junk food is? It’s designed to be addictive.

After you do get addicted, you lose your appetite for anything else.