Friday, 8 October 2010

How to measure social media ROI?

This blog is a follow-up of my previous blog and aims to clarify how ROI on social media actions can be measured. I decided to write on this topic because this is one thing that worried me the most as a social media newbie. I am sure there are lots of people like me who still wonder how to formulate a proper mechanism or identify key tools to measure returns on social media investments! Measuring ROI is absolutely necessary to convince your boss that your social media strategy is working and it is generating sales in some way or the other.

On this topic, I found a very interesting video that is both informative and wittingly funny as well. Here is the video.
Olivier Blanchard Basics Of Social Media Roi

Return on Investment (ROI) is a financial term to measure financial returns. The formula for calculation of ROI is discussed in the presentation, however to reiterate, it is measured as:

ROI = Gain from Investment - Cost of Investment
                        Cost of Investment

Both financial and non-financial aspects are not easily measured. The first step before undertaking social media initiatives and in order to be able to measure the returns accurately, it is absolutely necessary to define clearly what is expected from the social media activity - is it customer engagement, attraction of new customers and so on. Once the goals are defined, it is imperative to delineate the basis of comparison, i.e. identifying baselines to compare 'before' and 'after' cases of the social media actions. For example, sales revenue before implementing social media strategy and sales revenue after.

Some useful financial metrics are YoY growth rate, sales revenue, number of transactions per month, net new customers per month and earnings per transaction. These financial metrics need to be closely coupled to non-financial measurements in order to maintain context and identify what actions are causing the change! In order to enable the social media strategy to be effective and to evolve over time, it is important to establish relationships between actions and reactions!

Some non-financial metrics, which need to be correlated with the financial results include, tracking positive or negative mentions in communities, measuring web traffic, number of comments, queries resolved, etc.

There are many nice blogs that talk about the tools to measure web traffic, and those that identify special social media mentions and perform sentiment analyses. Few recommendations include:

These Mashable blogs extensively discuss the measurement tools and which ones might suit small or big companies.

If I were to mention some well-known tools to measure web-traffic, they would be Google Analytics (is is free!!), Hootsuite, Omniture, TweetMeMe (for Retweets on twitter specifically) and PostRank among others.

For companies with more than one website, it might also be useful to use "Roll-up" reporting in Google Analytics, that helps measure an overview of all the websites! Here is a good article on Roll-ups :

Even with all the tools, the choice of useful data among all the measurable metrics and the ultimate analyses of these useful data has to be performed with the social media personnel's judgement. It may be required to gather data from multiple analytical tools into an excel file in order to make customised analyses.

So, there was a primer to start planning and measuring social media activities! I hope to write more about measurement tools in my upcoming blogs. Stay posted.

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