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Increase the Accuracy of ROI Calculations by Redefining Return
Posted on November 25th 2013
Determining the ROI of social media marketing activity is a convoluted and complicated challenge that many – if not most – businesses and brands struggle with.
In an effort to better measure the value of social media marketing, a recent Business Insider article reports that, ‘many brands are moving away from metrics that purport to measure ROI on social media’.
This indicates that even many of those businesses and brands that thought they had a formula for placing a monetary value on their social media marketing activity have since reevaluated their methods and abandoned them as a result. This is likely due to a realization that their own valuation criteria were fraught with issues.
The article continued, ‘They’ve realized that social media isn’t a transactional engine or sales machine, so they’re dropping half-baked indicators that gauge secondary effects, such as financial return. Instead, the new metrics evaluate social media strategies in terms of audience-building, brand awareness, and customer relations’.
For most businesses, correlating social media activity directly to sales is a difficult task due to the non-linearity and complexity of many consumers’ purchase paths.
What I find most interesting about this is why an organization would attempt to make this direct correlation in the first place. After all, there are many factors that contribute to making a sale, some of which include brand awareness, brand affinity, price, distribution, shelf placement, availability, seasonality, economic conditions, customer support, loyalty, prior brand experience, brand trust, perceived referral value, and many, many more.
There are a huge number of factors that contribute to consumers making a purchase decision.
Measuring sales as a return on social media activity is equivalent to measuring the sum of all influencing factors to those sales, many of which can be directly impacted by social media.
So, to accurately measure the activity required to influence a purchase – in this case social media activity – you actually need to measure the various influences to that purchase – brand awareness, affinity, loyalty, and on.
Perhaps the problem many of us have with determining the ROI of social media isn’t with how to measure ROI, but is instead with how we define ‘return’.
If we stop thinking about the ‘return’ of ROI as end sales, and start thinking about ‘return’ as a sum of the value of all of the relevant aforementioned factors – which ultimately lead to sales – then calculating an ROI of social media can be much more achievable; not simple, but achievable.
In the cases of the businesses represented by the Business Insider article, I actually don’t see them abandoning their ROI calculations so much as I see them taking the beginning steps in redefining how they see a ‘return’, which is a step in the right direction.
How do you measure the business success of your social media marketing activity?
What ‘returns’ do you look for from your social media marketing efforts?
It would be great to chat with you about this further in the comments, or on Twitter @RGBSocial