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Evaluating Equations for Measuring Social Media ROI

Posted in Guest Bloggers, Social Media, Social Networking

– David Mitchel, Director of Marketing – Distribion, Inc.

At the end of my last guest post on this site, I promised that my next post would evaluate some mathematical equations for measuring social media ROI.

Special thanks to Angie Schottmuller of Search Engine Watch for writing a detailed article entitled “Social Media ROI: 14 Formulas to Measure Social Media Benefits”. I’m only taking a look at 3 of the equations today due to time & space constraints. I recommend reading her full post when you have some time to dedicate to this topic.

Without further ado, here are the mathematical equations.

11) Support Value – Online Self-Service:

GOAL: Enable Self-Service, Reduce Support Costs

_____(#) weekly support calls per topic
X _____% calls likely solved by self-service
X $_____ average support phone call cost
___________________________________
= $ Call Support Value

Example:  Estimated 1,500 weekly support calls at which 70% could be resolved online via self-service at an equivalent support call value of $6.30 each = $7,056 equivalent call support value

I chose Item #11 about online self-service because this is something that a robust social media and web presence can impact. Online self-service applies to all brands, but I believe that this would have more relevance for brands in product categories where the average price point for the product offering is higher and the product category lends itself to extensive questions. As an example, I think Dell would be more inclined to apply this equation to their social media efforts more than Dairy Queen. What I like most about this equation is that it considers consumer mindset in wanting to engage with the brand in the social sphere. When there’s a pressing post purchase concern, visiting a company website and perusing the social media sites of the brand are pretty common behaviors towards resolving that concern.

One of the keys to successfully implementing a social media presence based on this idea is creating website & blog content that addresses the most common service concerns. The website and blog content can easily be used for social media updates. These posts should be blended with brand building posts as well.

Effectively handling these items in the social media space could lead to enhanced customer retention and future brand loyalty as well, which isn’t directly addressed in the equation. However, retention is an item that most brands value. Many brands know exactly what retaining an existing customer is worth vs. finding a new one.

13) Sales Value – Social Leads (Lifetime Value):

GOAL: Grow Revenue, Generate Leads, Acquire New Customers, Retain Customers

_____(#) qualified online social leads identified
X _____% lead-to-customer conversion rate
X $_____ (LTV) customer lifetime value
__________________________________
= $ New Customer Lifetime Sales Value

See: How To CalculTate Customer Lifetime Value (LTV).

Example:  Estimated 100 qualified leads routed to sales teams with a typical lead-to-conversion rate of 4% at an average customer lifetime value (LTV) of $22,500 = $90,000 equivalent converted lead new customer lifetime sales value

Looking at this one, I see how companies in the B2B space would really be attracted to this, and many B2C companies would too. Brands with self-identified longer sales cycles would like it.

When one considers this equation within the MIT Management Review mental framework from the previous article, the equation gets murkier. The MIT Management Review was clear about wanting measurement of social media ROI to come from the incentives of the target consumer for using social media. In this equation, one wonders how the # of qualified online social leads identified is defined by the brand. Is this based on target consumers self-identifying? Is it based on evaluating a list of names of Followers on Twitter? I know I’d need greater clarity on this part of the equation.

Lead to customer conversion rate is really a good thing to know. There’s often statistics out there industry wide in a particular industry and a lot of brands would be cognizant of their own ratios and formally track it. LTV is an even more essential item to know.

14) Sales Value – Social-Aided Conversion:

GOAL: Grow Revenue, Boost Conversion

( _____% new conversion rate − _____% old conversion rate)
/ _____% old conversion rate
X $_____ average # monthly products sold
X $_____ average product sales value
__________________________________
= Increased Sales Value

Example:  Estimated conversion rate increase from 2% to 3.5% with an average 100 monthly products sold at $750 = $32,142 more in monthly product sales

I feel that this is a strong general metric after going from nothing to maintaining an active social media presence or after a significant change in the way that social media is being used by the brand.

Social media alone may not fully explain a new conversion rate. I’m also not sure how this formula accounts for changes on average # of monthly products sold and average product sales value. A change in conversion rate would change the # of monthly products sold and there may be an effort on value of product sales.

A recent Mashable article had a good suggestion for measuring social media ROI. It suggested to look at overall results, then work backwards. Though that’s not the most concrete way of doing things, I see value in it. Almost every mathematical equation will have some sort of flaw if one looks hard enough, so perhaps one of the simplest suggestions can provide a valuable perspective.