Let's just say for the record that ROI always matters. No matter what, any time you are going to take a client's or company's cold hard cash and invest it in a marketing or product development program, ROI matters. Maybe not today, maybe not tomorrow, but somewhere along the line, someone very high up will want to know what came of that $50 or $100K you "invested" into social.
This post is dedicated to those CMOs and clients from my past and present who demanded on ROI forecasting and tracking for every project, and for my budget as a whole.
I'm going to take a shot at offering a way to handle forecasting of social media ROI here, and hope to stand up to tracking in a subsequent post.
ROI Primer
Real quick primer on ROI, or Return on Investment. Another way to think of it is Return OVER Investment. It's best calculated using a conservative estimate of the actual profit to be generated by the project, over only the costs that will be incurred directly for the project.
(Revenue - Cost) / Cost
Put this way, it's a fraction that needs to be greater than 1 for a project to even be considered. Generally we want to see ROI of 2-3x or greater forecasted to even seriously consider a project.
ROI + Social Media
This turns ROI on it's head. The masters say don't worry about ROI and
social. Barry Judge, CMO of socially adept Best Buy, stated at the
Forrester Consumer Forum in Chicago, that social needs to begin with
the customer, not the bottom line. And he is right.
This means that payoff will not come right away, if at all, at least
not directly. Instead, you need to look for social KPIs that fit your
objective with whatever project is at hand.
Forrester does a great job mapping POST objectives to metrics in Nate Eliot's recent report on measuring social ROI:
Raise awareness
- Exposures to brand
- Visits to fan page
- Fans of brand
- Comments, posts or submissions
- Referrals or posts to user's news feed or status
Boost engagement
- Participants in community
- Suggestions or tips submitted
- Active (repeat) users
The bottom line is to choose metrics that describe what actions your users will take on your
behalf.
Calculating Social ROI
The added dimension here is engagement over time. Social is not a
campaign, and results will not spike with a launch party. It's much
more organic. Even "viral" social programs begin with a small number
of first finders who build over time.
This means that first, you must decide how long you can give yourself
to succeed. Again, this correlates to your objectives.
Next, use a forecast formula that keeps all assumptions clear and
simple to understand. Here's one I use:
Audience x Engagement x Adoption x Value per User x Multiplier Effect X Time of Engagement
---------------------------------------------------------------
Investment X Time of Investment
Ideally, time cancels out top and bottom. But time on top might be
much greater than time on bottom: an evergreen success from a short
investment. Or it might be much smaller: a flash in pan fan page that never goes anywhere else and does not inspire ongoing engagement.
The other parameters go like this:
Audience - total size of your segment. Say, 80 million moms in the US
Engagement - rate of participation on the platforms you've chosen.
Say, 40% of moms aged 24-39 today are on Facebook. This is a stat you
should be able to find
Adoption - rate you forecast your audience segment will find and use
your app, widget, etc. Try to use a benchmark. Be conservative. One
third of iPhone users download the Facebook app. Yours will not come close to this rate
Value per User - another forecast, this time based on whatever lifetime lifetime value the participant imparts on your business. Keep in mind that social participation typically does not match up directly with site conversion! The input here might simply be a PPC amount you would have spent using paid keywords to attract this user. Instead, she found you as a result of your presence on a social platform she's using.
Instead, with social, the real value per user is typically supercharged by:
Multiplier Effect - this is the number of "friends" your participants will expose your brand to on your behalf. So that one participant who found you and offset your PPC spend also shares your brand implicitly with 120 of her friends on Facebook, when she posts to your wall.
So, there's a basic equation. The result will give you a value in offset dollars, new brand equity or user enthusiasm over time, over some investment which should not be very large.
The next step is to think about how this expression of value moves your customers to either consider you at some point, or stick with you time and again. For now, let me know if this formula works, or how you might improve it. Especially the Multiplier Effect and the value and velocity of referrals it implies.
Ideally, time cancels out top and bottom. But time on top might be
much greater than time on bottom: an evergreen success from a short
investment. Or it might be much smaller: a flash in pan fan page that never goes anywhere else and does not inspire ongoing engagement.
The other parameters go like this:
Audience - total size of your segment. Say, 80 million moms in the US
Engagement - rate of participation on the platforms you've chosen.
Say, 40% of moms aged 24-39 today are on Facebook. This is a stat you
should be able to find
Adoption - rate you forecast your audience segment will find and use
your app, widget, etc. Try to use a benchmark. Be conservative. One
third of iPhone users download the Facebook app. Yours will not come close to this rate
Value per User - another forecast, this time based on whatever lifetime lifetime value the participant imparts on your business. Keep in mind that social participation typically does not match up directly with site conversion! The input here might simply be a PPC amount you would have spent using paid keywords to attract this user. Instead, she found you as a result of your presence on a social platform she's using.
Instead, with social, the real value per user is typically supercharged by:
Multiplier Effect - this is the number of "friends" your participants will expose your brand to on your behalf. So that one participant who found you and offset your PPC spend also shares your brand implicitly with 120 of her friends on Facebook, when she posts to your wall.
So, there's a basic equation. The result will give you a value in offset dollars, new brand equity or user enthusiasm over time, over some investment which should not be very large.
The next step is to think about how this expression of value moves your customers to either consider you at some point, or stick with you time and again. For now, let me know if this formula works, or how you might improve it. Especially the Multiplier Effect and the value and velocity of referrals it implies.
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