What is the ROI on Social Media?

I’m a numbers guy.  More specifically, I’m a money guy.  In every job I have ever had, the primary goal was always to make money.  It’s why I love working with business owners and their social media – because we help them tell the story of their business, grow their client or customer base and ultimately, make more money.

So when I hear people talk about the Return on Investment (ROI) on Social Media and then start referring to it as the Return of Influence, or some other cheesy marketing substitute that someone created, or they ignorantly say you shouldn’t worry about ROI, I get annoyed (to put it lightly).

To me, if you can’t tell someone what kind of return they should expect from the money or time they are putting in, then you are doing them a disservice.

Because the truth is, the ROI on social media CAN be measured, but maybe not as easily as you would like.

First, you have to understand something very important about ‘investing’ in social media: social media is not an investment.

From a financial perspective, when you talk about the return on an investment, you are implying that you have invested and acquired an asset that will give you some kind of monetary return.  An asset being stocks or bonds, or a piece of real estate – which you can precisely track how much money you receive from them in terms of dividends or rent.  Assets can also be sold at a later date for a profit or loss.  It’s a tangible thing and it is reported on the balance sheet (a financial statement showing what a business owns and owes a given point in time).

Social media is not an asset.  Social media is not something you purchase and can sell at a later date.  And this is important. When business owners start to ask how many dollars they are going to receive directly from social media, that is a nearly impossible question to answer.  (This might sound contradictory to what I have said so far, but stick with me)

You see, from a financial perspective, social media is actually classified as an expense.  It shows up on the profit and loss statement (a financial statement which shows the money coming in and money going out in a given period of time.)

An expense is something that you pay for to run your business, like your phone, office rent or business cards.  They are things that support your business and help your business.  You would never ask what the ROI is on your phone line or business cards.  When you decided to get an office, did you ask how many dollars you were going to receive from your monthly rent expense?  Didn’t you just understand that having an office would add legitimacy to your business and that would help?

That is the category that social media falls in to.  It’s an expense.  So think of it like an expense.

Expenses are items that help your overall business grow, but they are very difficult to track the money earned by them.  However, that doesn’t mean you should just pay for them and not worry about the money you are spending.  Social media WILL help your overall business grow.  If it’s not, then you need to see what is going wrong or evaluate whether it’s a good fit for your business.

Here’s the truth about the ROI on social media.  And you can ask anyone who does this professionally.  I have spoken to and heard from countless social media managers – from consultants to directors at the most popular brands – they all say the same thing: It’s impossible to tell precisely how much money is made from their social media efforts.  The other truth is that no one knows how much a ‘fan’ or ‘follower’ is worth.  You can’t put a dollar amount on it.  However, everyone agrees that it is incredibly important – AND – that it has helps their overall business grow.

So, now that you understand assets and expenses, and you understand that social media is simply an expense and it’s impossible to track how much money you make from your effort or money you put in… I am now going to tell you how to measure the ROI of your social media.

But didn’t I just say you couldn’t determine the ROI of social media?  Let me explain.

Your social media marketing needs to have defined results.  What are your goals for social media?  Do you want leads?  Do you want to increase visibility with your current clients/customers?  Do you want to educate people about your product?  Do you want to drive traffic to our website?

No one should ever do social media just to do it.  It needs to be results oriented, but the results cannot be simply measured by money.  You need to understand that dollars in does not equal dollars out.

Have a set goal and reason for doing social media.  Define reasonable results.  Then figure out how you are going to measure those results.  Those results are your return.  If those results are not worth the time or resources you are putting in to your social media, then you either need to do it better or decide whether it is worth it or not.

Katie Wagner Social Media Blog, stephen wagner, social media






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