Social media ROI:
the measure of what matters (profit…revenue…mission…) versus the resources required to achieve it.
“What matters” varies by organization, and helps to create the unique culture, vision, and market positioning that distinguishes one organization from another. Across organizations, however, 3 big benefit categories emerge:
· Revenue
· Profitability
· Mission
While non-profits might not talk about “revenue” and “profitability,” the need to generate “funding” and to maximize “cash after operating costs” are equivalent when we are calculating ROI.
Leaving aside “mission” for the moment – not because it is less important, but because it is more variable – the critical issue is how to assign returns to social media activities. Returns are rarely one-to-one, and are often viewed as the cumulative effect of many initiatives.
No question that synergies across digital and non-digital activities multiply returns. ROI calculations should, then, prove to be conservative and attainable!
Generally, I use 4 categories of benefits when developing a social media business case:
· New Direct Revenue
· Impact Revenue
· Cost Reduction
· Brand Image and Fundraising
New Direct Revenue is the easiest to measure. At times, new direct revenue results from social media activities opening new sales channels.
Greater customer insight can also create new revenue opportunities. iRobot, for instance, used a customer support forum to glean insights about how customers used the product. To their surprise, the company learned that customers were treating their mini vacuums as pets and using them to play games. As a result of that insight, the company started a multi-million dollar revenue stream selling paints and “skins” for the vacuums.
Impact revenue measures the incremental sales that social media activities drive through traditional channels. Intuit established a community forum and monitored the conversations for lead generation. The company was transparent, openly engaging in conversations when they thought an upgrade or alternative product would resolve a problem and inviting the customer to call if s/he wanted to pursue the option. In the first year, Intuit realized a 4% increase in their share of market (a feat for the already dominant company!) and a 30% bump in sales. (For more on Intuit: http://www.businessweek.com/magazine/content/09_28/b4139066365300.htm and http://www.webpronews.com/social-media-lessons-from-the-big-brands-intuit-edition-2010-03 )
Cost reduction, usually associated with a decline in customer service calls, is the most common go-to benefit measurement. Every deflected call increases the bottom line. Customer service via community sites, Facebook, and Twitter have often also improved customer satisfaction as a result of decreased response time and more knowledgeable “super users” providing insight and guidance.
Brand image and fundraising is the final big bucket of benefits, serving both financial considerations and mission. In the non-profit world, I have seen greater interest from sponsors when the organization is actively involved in social media. Corporate partners note that the digital activity provides greater reach and a more vibrant network.
Examples of corporations using social media to re-position themselves are legion, illustrated by the by-now famous MyStarbucksIdea that enabled Starbucks to reconnect with customers and employees. When Starbucks began to focus on digital and social media, the company realized its first gain in same store sales in 2 years.
Each of these buckets of benefits yields measurable financial return.
Along with the costs discussed yesterday, the measures enable realizable ROI – the third of the 3 key actions needed to convince CEOs of the value of integrating social media into all aspects of the business.
1. Get the executives personally involved
2. Conduct show-and-tell education sessions
3. Demonstrate the ROI
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