An inexact science: Measuring return on investment in social media

The hype around social media is intense: eight new people are coming online a minute and there are predictions that by 2016 the internet economy will be worth $4.2 trillion. There have been calls for executives to get online and talk to customers, suppliers, employees. (That’s in their “spare time”, right?)

Meanwhile, those same leaders are scrounging for every cent of savings. So the question remains: is there any way to calculate the return on investment (ROI) in social media versus other channels?

While there are numerous metrics promising that, the short and disappointing answer is no – or at least, not definitively. The difficulty of distinguishing the buying context – such as via ecommerce advertising, or social media recommendations –  means there is not yet a conclusive measure for the contribution of social engagement overall.

However, there are some effective ways to make an evaluation.

The most advanced tools capture the non-financial value of lead indicators, such as online relationships.

Since word-of-mouth recommendations are one of the cheapest and most effective forms of marketing, getting some background on how online relationships influence the purchasing decisions of consumers is a useful for business leaders.

In this case, the return on investment of social media could be measured by the cost saving from trying to obtain the same data by other means, such as focus groups, which are expensive, or surveys, which can be inaccurate.

For example, a recent report by Forrester Research says an effective social media marketing scorecard considers metrics from four different perspectives:

Financial: Has revenue or profit increased or costs decreased?

Brand: Have consumer attitudes about the brand improved?

Risk management: Is the organisation better prepared to note and respond to attacks or problems that affect reputation?

Digital: Has the company enhanced its digital assets?

Forrester quotes computer company Dell Outlet’s Twitter account as having “generated millions for Dell”.

Dell claims it generates sales from its Twitter accounts by “posting offers and responding to questions”, although the details are sketchy. Dell’s in-house marketing manager, Stephanie Nelson, wrote that the company had earned $2 million in two years – between 2007-2009 – when people followed links from the Twitter site to the Dell outlet site. She says it also created interest in new products, although there is no measure of the return from this interest in the form of sales.