Wanna Measure ROI? Get Your Metrics On

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Wanna Measure ROI? Get Your Metrics On


Wow, wait a minute.  You just told us it’s stupid to measure ROI, now you’re gonna put up a post telling us how to measure ROI? Are you just trying to create controversy or are you just putting up any old post?

Actually, it’s none of the above.

Why Measure ROI?

In many large and medium sized businesses, projects that can’t measure ROI don’t get done and projects who don’t perform well on the basis of ROI get axed.  I understand why CMO, CEO, and boards really want to ensure profitability and the best way to do that is to hold every department and project accountable in financial terms, right?

Well, as you’ve heard me say before, it makes no sense to measure ROI for some business functions and marketing, especially social media marketing, is one of them.  But, that’s NOT because social media marketing doesn’t provide favorable ROI, it’s just that its hard to equate the two.  Also, as I mentioned in my post yesterday, there’s a time lag between social media marketing efforts and ROI.

Effectively Measure ROI

So, now we have a conundrum.  How do we measure ROI when social media marketing doesn’t map DIRECTLY to sales and when there’s a time lag between efforts and returns?  Of course, here I’m talking about earned advertising — the interactions on your Facebook wall or your Twitter profile.  With paid social media advertising it’s easier to measure ROI using traditional tools.

I turns out the answer is simple, but not easy.  Get the right metrics.

See, when CFOs and other analytical types talk about measuring ROI, what they really want to look at is “what did you do for me today?”  What these bean counters want to do is take the easy way out — they want to graph the relationship between the costs of a business action and sales or calculate a ROI as a percentage of investment normally using sales as the measure of return.  Commonly, firms want to ax projects that don’t meet some standard ROI, like 20%.

And, it’s this simplistic ROI measure that doesn’t work for marketing and social media — which is why I argue you shouldn’t measure ROI.

But, you can measure ROI — you just have to be a little more creative.  Simply, substituting measures such as # of Likes, # of Followers, and # of shares doesn’t work very well as an alternative measure of ROI.

Instead, we can marry traditional market research with online metrics to get a pretty good measure of ROI.  But, this takes a little work.  More than just tracking income and expenses.

Ways to Measure ROI in Social Media

  • You could measure ROI like advertising agencies do — get a focus group together or send out surveys to assess changing attitudes, beliefs, and behaviors related to the brand.  Remember the Fishbein and Ajzen model I showed you yesterday?  Once you have the data you can do a regression to determine how strong the relationship is between attitudes and behaviors using the focus group or survey data (it’s easier with quantitative data).  Once you know the relationship, all you need to do is monitor attitude changes about your brand using listening software, like Radian6 and you can measure ROI using the strength of this relationship.
  • Put together a consumer panel.  Ask them to track what they buy.  I recently attended a webinar where the firm had purchase data from households, along with Facebook data for the people in the household.  Hence, the firm know how often they saw brand messages from the firm and the person’s friends on Facebook, whether the individual Liked the brand, and whether they engaged the brand on Facebook.  Using this data, the firm CAN calculate the value of a Fan, the value of a share on Facebook, and the value of an engaged Fan.  Now you have an accurate means to extrapolate across your social media to measure ROI from your social media investment.

Maybe you have some more ideas of how a firm can measure ROI.  Please share them using the comments below.

Final Thoughts About Measuring ROI

Sure, none of this is easy.  It takes a little more time to collect and analyze this data and the data cost a little bit.  So, it’s nowhere near as easy to calculate ROI in marketing and social media. but not impossible.


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