Sofus Midtgaard

How does social media activities contribute to the bottom line?

November 20, 2009

After years of questioning the viability of the business models – at least services like Myspace, Facebook and LinkedIn have proven business models and now profitable. Google is still struggling making a profit on Youtube but expect it to be profitable in the not so-distant future. New-kid-on-the-block Twitter still has to find a viable business model.

From hype to reality: many of the social media networks are already – or are very likely to become profitable businesses in the very near future. So far so good!

But how to measure the R.O.I. for traditional companies investing money in social media?

Social media and Web 2.0 evangelists around the world have hyped social media as a new paradigm in communication, marketing, direct-sales, consumer research and even innovation. In fear of being left behind, companies have joined the social media wave and started Blogs, joined Facebook, opened a Twitter account or maybe even launched an Open Idea-Platform. But too often social media initiatives end up as awkward and half-hearted project with a very doubtful return on investment (R.O.I). Whether unsuccessfully projects are a result of the lack of clear goals, commitment and skills within the companies – or as some claim: the result of over-selling consultants has been a heated debate on different blogs.

Great potential in social media

Few question the fact that there is great potential in – and some very impressive cases on using social media for: branding products, boost traffic, increase sales, stimulate innovation and customer dialogue. Some impressive cases are presented in this video from Socialnomics:

But in a fast paced world of social media new-bizz to often managers and consultants vanish or become vague when it comes to measuring the results and evaluating projects.

From buzz to delivering value

Some Social Media Evangelists claim that you cannot measure a new paradigm with the tools and metrics of the old world. They might be right. A very rigid selection of metrics might miss important intangible effects of social media activities. But the lack of agreed upon metrics, methods and tools for measuring effects characterize a young industry. I do not claim that measuring the effect of investing in social media is easy. The right metrics depend highly on the top-level goals of the project.

Defining and prioritizing what to achieve

Few companies spend huge amounts of money on projects without an idea of some return on investment. Still it seems there is room for improvements when it comes to defining and prioritizing the top-level goals of many social media projects. Her are some typical top-level goals.

Typical top-level goals

• Corporate branding (perception of company as more open, personal, transparent or innovative…)
• Marketing/product branding (Products awareness, perception of quality, service, relevance…)
• Sales (new or existing products)
• Customer happiness or loyalty
• Cost reductions (Reductions in Marketing or Customer Service spending)
• Open Innovation or Co-creation (Getting ideas or suggestions for new products)
• Employee happiness & loyalty
• Internal knowledge sharing
• Internal learning

The better prioritized and the more specific on top-level goals – the easier it is to choose how to spend your money. You can use a scorecard as seen below to prioritize the goals:

In some cases it might show that spending your money off-line are more likely to generate results. In some cases it might show that other on-line activities like:

• Organic SEO
• SEM/Adwords
• Banner Advertising
• Affiliates/partnerships
• Viral campaigns

…are more likely to generate results. And in some cases you might end up concluding that social media could play a major role in reaching your goals. There is no certainty in business and to some extend this call will always to some extend be based on a gut feeling.

Measuring Social Media Marketing activities

Some work has been done in the field of measuring Social Media Marketing. But too often people confuse project-goals with effects goals. I have listed some typical projects-goals for Social Media Marketing projects below.

Possible projects goals:

• Facebook Friends/Fans and comments
• Twitter followers and ReTweets (or Twitter Grader position)
• Newsletter subscribers
• Youtube views and ratings
• Mentions in blogs (Positive/negative)
• Ideas, votes and comments submitted to an idea platforms
• Positive/negative press articles
• Website page rank in Google
• SEO position on strategic key-words
• Number of visitors, page views and comments on your blog
• Unique visitors to company website
• Unique visitors to web-shop
• Goal completions on website or shop (Analytics)

All of the above are potentially valuable indicators of the success of your social media marketing campaign – depending on your top-level goal. As mentioned in my earlier blog-post, many social media project are only measured/evaluated on projects goals as it is often hard making the direct link to the effects.

Here is a list of typical effect goals:

(Non-financial)

• % of customers who perceive company as more open and transparent
• % of customers who knows and like products x
• % increase in customer loyalty (reduced
• % reduction in cost for marketing or support
• % of employees who are happy or very happy working in the company
• % of employees who feel better informed about what happens in other divisions
• % of employees who feel that develop new skills at work

(Financial):

• net-profit from increased sales of new products/services
• net-profit from increased sales of existing products/services
• % of sales online
• revenues from banner, adwords or affiliate
• reduced cost for marketing, support or call-center
• Etc.

To estimate the bottom line value of a social media project you either need to apply an “artificial” $-value to project goals i.e.: 1 Facebook fan = 1$. Or you will need to measure effects and try to track back the effect more directly to the initiative, which is also hard.

Google Analytics will in some cases help you analyze a pretty direct link between your social media campaign and the generated traffic to your website or online shop. If you set up “goals” in Google Analytics the link between a campaign can be even stronger connected to the sales of an online shop. But when it comes to off-line sales or “soft” non-financial effect goals the link to the campaign is harder to establish. Many soft goals are typically only measured once a year and much can influence them during that year.

A pragmatic evaluation of the value of social media activities

Instead of waiting for “perfect data” and trying to track back the effect to a specific project, another approach could be letting key employees estimate the effect of a social media project/initiative. For an elaboration of this approach to estimating value – se my post: How does innovation contribute to the bottom line?

The dream of the perfect Social media R.O.I. Calculator…

Some attempts to make a R.O.I. model for Social Media has been made. But the dream of making a perfect Social Media R.O.I. calculator will probably for some time stay a wet dream of the CFO or Head of Marketing as illustrated here by Oliver Blanchard:

The mentioned R.O.I calculator (not recommended) can be found here

Wrapping up

Measuring the  value of social media activities is not easy, but new tools and approaches to measuring effects will emerge and gain consensus. They might not be as rigid as traditional tools, they might use other dimensions and hold more complexity – but at the end of the day they need to be linked to the strategic goals and bottom line of companies.

If you have thoughts, ideas or examples please share links or comment…