How do I measure ROI in Social Media Marketing?

"Yes I know social media is a great marketing tool, but how is it going to affect our bottom line?" A marketing director threw this question at me at a conference yesterday. I get this question from marketers and accountants in all sorts of ways you can imagine! Some say it out blatantly, "so where's the money in it?", others have a more subtle take on it, something like "what financial benefits is it going to yield?" .....fair enough... if you're investing your money into something you deserve to know if and how will you get it back.


What we're all after is the return on investment (ROI) of social media marketing. And I would like to use this platform as an opportunity to answer all those questions pointing towards 'How do I measure ROI in Social Media Marketing?'


I have come across several blogs which say that ROI of social media marketing is very difficult to calculate. One of these blogs mentions that this form of marketing is based on conversations and people's chats about products or brands would not say how many prospects actually convert into customers. Hence it is difficult to define the monetary return on it.



I completely disagree!


Let's first break down ROI:

Cost of investment: Technology (cost of setting up a social media forum) + People (wages of employees maintaining this forum).

Gain from investment: New customers (increase in sales) + Increase in brand loyalty (we can find this under the heading of 'Intangible Assets' as Goodwill in our company's balance sheets).

Therefore....


The formula simply gives us an accurate return on investment on social media marketing. Having said this, we should be clear on the fact that benefits of this digital marketing method would exceed more than the ROI percentage that is calculated using the above formula. Since the content here is user generated, the social media forum gets a life of its own. It's beyond our control as marketers or web developers to anticipate the extent of its growth.

Mark Zukerberg (Facebook owner) says he had no idea that someday Facebook would have more than 65 million members - not because he's trying to be humble! It's because the magnitude of social media marketing is impossible define in financial terms

So yes, it's impossible to 'anticipate' but fairly simple to 'calculate' the ROI.

In social media marketing, the whole is always greater than the sum of its parts.