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Monday Mornings with Madison



Because of the recent spike in social networking activity, many companies are now considering whether to develop a social media platform for their company and products. But one of the questions often raised when it comes to using social media for business purposes is how to measure the ROI, or Return on Investment, on these programs. Obviously, it takes time and money to build an active presence online, and so the question of ROI is critical. Do these investments pay off in measurable returns or is social networking more like branding — you can’t quantify the results but maybe you can “feel” its impact on your business?

The biggest expense in social media is time. If, for example, you spend two hours a day researching and writing a business blog, you have to put a price tag on that time. The simplest way of doing this is to take your yearly income and divide it by 2000 (a 40-hour work week multiplied by 50 weeks per year). Based on this formula, if you earn $100,000 per year, your hourly rate is $50, so two hours per day spent on your blog comes to a cost of $500 per week. The question of whether it is worth your time would then seem to be fairly straightforward: are you getting more than $500 of business from your blog every week?

But the answer isn’t so simple. Whether it’s in a blog or on FaceBook, LinkedIn or YouTube, the essence of social networking is that it is an interactive conversation — a dialogue — with the public and it’s hard to quantify the value of a conversation.  You engage in social networking in order to participate in the conversation that surrounds your brand. It allows you to enhance your relationship with your audiences and become a trusted member of your professional community. Will the value derived from this dialogue affect your bottom line? If it will — and many companies now believe this to be true — you should be considering the use of social media.

There are metrics that can help you figure out some aspects of the ROI on social networking. For example, you can use Google analytics to tell you how many people clicked to your website from any one of your social media platforms and whether they then bought your services or products. Because you can track where your traffic is coming from and see how many sales emerge from which channel, you can more easily measure online activity than the ROI on traditional methods of business-building, such as advertising and publicity.  Another way to measure the effect of a social media site is to discuss on it one specific product or service and then measure the sales of that product compared to its previous sales. You can also place a special code coupon on a site and track how many people use this coupon.

It is still impossible, however, to find a system or program that will address all the questions of ROI on social media. Part of the value of social networking has to do with its effect on the page rankings given by the web’s search engines. Companies frequently cited or hyperlinked online, especially when they appear on content-heavy sites like blogs, come up higher on search results.  A higher page ranking means a greater chance that people will contact your website for business but this likelihood cannot be factored into a simple ROI formula.

Another unquantifiable value is the increased understanding of your business that is generated by social networking. The more time you spend reading about and responding to industry issues, the better your ideas and insights will be. You can get a keen sense of the marketplace and the needs of your customers by participating in the conversation online, and this gives you an opportunity to create and improve your products and services.

Starbucks recently conducted a promotion that demonstrated both the ease and the difficulty of measuring ROI on social media. On July 21, the company announced on its website that it would offer a free pastry with every coffee purchased that day before 10:30am. That morning the Starbucks promotion was one of the top subjects on Twitter, with 1% of all tweets. On FaceBook, where more than 3,600,000 people are fans of the company’s page, 600,000 people confirmed their participation in the promotion. Meanwhile, the company’s blog drew countless comments from fans sharing their experiences, both good and bad, with the pastry promotion.  Responding to these comments and concerns gave the company a chance to build a greater connection between their customers and the brand. This promotional event demonstrated the power of social media to reach out to millions of people in a few hours for very little cost.  But perhaps an in-store flyer or a TV ad the day before would have generated a similar response.

The bottom line is that most big companies are developing social networking platforms and they are all trying as best they can to measure their ROI. Tools to track and measure  results in relation to investments will surely improve over time, but as social media platforms grow more complex, their ROI will continue to be difficult to determine.

Part Three of our look at social networking will cover blogging for business.

“When you say ROI, do you mean Return on Investment or Risk of Inaction?”   
Paul Gillin
at the Blog World Expo, when asked how to measure ROI on social media

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