When building social media campaigns for clients I’m often asked, “What kind of ROI will I get with this investment in social media?” Some of you reading this article might be wondering what ROI is. ROI stands for “return on investment.” Plain and simple it’s a business or financial metric which, as the name implies, is used to measure the type of return we get on an investment. That investment might come in the form of time or money, or both. You might be thinking, Duh, pretty simple, right? It may be simple, but it is incredibly difficult to measure in terms of social media. The important thing to remember is that it is a business or financial metric. Not a marketing or media metric. That’s why you will often see marketing people cringe when they are asked the question, “What’s the ROI of social media?” As I mentioned, it’s very hard to quantify the ROI of something like social media. It’s kind of like asking what the ROI of networking event is. Think of the last time you attended a networking event. It could be a party, organized gala or a planned networking event. Think about your thought process when deciding weather or not it would be beneficial for you to attended. Did you think to yourself, what kind of sales will I get off of this? Did you wonder, how will this benefit my business? Chances are you probably asked yourself both those questions in one way or another. In most cases you probably decided to attend because you knew that the exposure would be good for your brand. You know that there will not (in most cases) be any tangible, measurable result to the time and money you put into the event, but you go anyway because exposure is good for business. You show up at the party and spend a lot of time meeting new people and reacquainting with old friends and colleagues. You are getting your name out there because you know that someday someone will be reminded of you and your brand. It might happen a year from now when that guy you met at the Acme benefit gala remembers you while sitting in a board meeting. It might be tomorrow when someone sees an interesting Facebook post and thinks to himself or herself, boy I really need to call her. All that being said, people will still ask the question. “What type of return am I getting on this?” They want to know that they are not wasting their time or money. OK, fair enough. Let’s go ahead and break it down and see what we can come up with. The way ROI in the business world is calculated is based on a mathematical formula. ROI=[Gain from investment – cost of investment]/cost of investment. For example, I invested $100,000 dollars in an orchard, and I made $200,000. According to the equation ROI=1, or 100 percent. In this equation you are looking at a measurement of dollar costs or currency. The variables stay the same. You are not asking how much money you put in to find out the number of peaches you would yield. Yes, maybe in a roundabout way, but the bottom line was dollar-for-dollar return. But the question is, what are we truly measuring? You cannot have a mathematical formula where the cost of investment is measured in dollars, and the return is measured in Facebook mentions! Just like the networking event, you might not realize the return in a quantifiable manner. The important thing to go back to here is exposure, and how it relates to something we can measure. Correlation. The easiest way, by far, to put this into financial terms is to measure the correlation certain activities have against previous activities. Xplain Media has put together a fascinating process to measure correlation. I have laid out the process below. 1- Start with a baseline. Where are you at a given point in time in terms of: revenue, positive mentions, negative mentions, etc.?   2- Create an activity timeline. This will give you certain milestones that are measurable. For example, did we see a jump in site activity because of a post we made?   3- Monitor the volume of mentions you are receiving.   4- Measure the transactional forerunners. What you can measure versus what you should measure.   5- Look at the transactional data for sales revenue.   6- Look at the transactional data for transacting customers.   7- Overlay all your data onto a single timeline.   8- Look for patterns.   9- Prove or disprove relationships. Correlation!   See attached graphs….
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