How to properly calculate social media ROI
The problem much of the world is having with social media is how to gauge its value. Everyone knows there is value to be had, but measuring it is proving to be tricky.
CFOs are tearing their hair out and driving CMOs crazy with demands of financially quantifiable returns. The truth of the matter is that social does not quantify in a straightforward manner. Businesses must adapt.
The answer, for me, is that social engagement, reach and more ethereal social quantifiers like trust and authority (collectively "social influence") are contextual.
Unlike other performance indicators, which may be market or industry related, social influence is something that is specific to a business. It can't be calculated by an algorithm that measures only volumes of followers, for example.
ROI must not be directly calculated from social
Everyone is trying to put a dollar value on things like "the number of twitter followers", or " the number of FaceBook fans". This is not a good way to do things because:
- Number of connections says nothing about level of engagement
- Level of engagement differs dramatically from one business to the next
- Level of engagement differs from one follower to the next
- Reasons for connecting differ per connection per business
Basically, the reason people are struggling to put a dollar value on social media is because there isn't one. The value of social media can only be determined by looking at fundamental KPIs (Key Performance Indicators) for each individual business.
Calculating social influence is difficult enough without assigning a dollar value
To give you an example, Darren Rowse of ProBlogger, an influential leader in the field of blogging and social media replied to an article I wrote about measuring your social influence with Klout, entitled "Social marketing: How influence is overtaking traffic as the new web currency".
Klout is arguably the world's leading service for measuring social influence, but according to Darren, they have a long way to go. Here's a bit of wisdom he had to share:
1. My klout score jumped around so much it became irrelevant to me. One day I was 85 – the next day I was 70 – it jumped up and down over the weeks I monitored it to the point that I wasn’t sure if I was coming or going.
2. Alexa is also an odd measure for me. While Alexa shows a decline in traffic for ProBlogger it’s actually held steady (if not raised a little in the last 12 months). While comparing ProBlogger (ranked in the 2000s) to Digital Photography School which is ranked in the 4000s – the reality is that dPS is read by 6 times the amount of people that ProBlogger is. Alexa also shows it in decline but it’s grown the last few months each month and over the last year has grown considerably.
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Ultimately though these kinds of measures and comparisons don’t really phase me that much these days – in fact they are increasingly irrelevant to me and more of a distraction than anything else. I see a lot of people putting so much focus on increasing klout, alexa, peer index ratings etc – but worry that they’re sidetracking themselves by doing so.
What I’m more interested about is the actual metrics – my actual traffic, actual sales of my products, actual ad sales, actual feedback from readers.
just my two cents worth.
This is a good indicator of how difficult it is to give social a true quantification. But, we all want to measure the value of things, so the demand is not going to go away and people will need to keep trying to calculate the value of social.
So what's the best way to do it?
The value of Social must be contra-calculated
The value of social media can only be calculated retrospectively by looking at fundamental KPIs within the context of the business itself.
Instead of looking at how many followers or Klout a business has mustered, and then inferring the amount of value they are deriving from their social marketing, the calculation should be performed in reverse.
Look at a fundamental KPI such as online conversions or sales via Amazon, and use those figures to estimate the value of the reach and influence of social.
Basically, you look at what's coming out of the sales "funnel" to decide the value of what's going in at the other end.
Once you know the value of your social marketing, networking and influence it is then a straightforward matter to calculate the ROI. Simply feed in the amount of time, energy and cost that is directed into social and contrast this to the estimated value that derives from it to get the ROI.
Using social as a metric is never going to produce 100% accurate results. But then, science cannot predict radioactive decay for any given atom - only the aggregates for large numbers - and yet life continues.
Online earnings and ROI calculators
Check out these two super quick, fun content earning and ROI calculators. They'll help you to quickly get an idea of what type of revenue your content should be generating and at what rate of return:
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