Is Social Media ROI a Myth?!

I follow Simon Salt on Twitter, and I just finished reading his blog “Why There is No Social Media ROI“. Simon’s blog started out by challenging: “There are a lot of people who will tell you, in great detail if you let them, about Social Media ROI. These people do not know what they are talking about.” Would you say you agree with this?

Simon’s stance is that “Likes” & “Follows” do not equate to cash, thus you cannot calculate an ROI. I agree that “Likes” and “Follows” alone hold no cash value, but using Google Analytics you CAN drill down to a measurable Social Media ROI figure.

Simon suggests that if you have someone on staff talking about ROI for Social Media, that you should fire them immediately. I think you should only fire your Social Media Consultant if they call themselves an “expert” or a “guru”. Lord knows I’ve gone on that rant a few times already.

Measuring Social Media ROI

Looking at the above image, we’ve got a break down from Google Analytics that shows where our site traffic comes from. 31.73% of the traffic was generated by Search Engine visits, not necessarily because of SEO, but we then break down all search visits by “Branded Searches” and “Non-Branded Searches”.

We wouldn’t attribute someone searching for you by name as a visit we can attribute to SEO, that said, generic non-branded searches we would claim and use those numbers to calculate how much income SEO had generated.

The same breakdown can be done to track Social Media ROI. You can see that facebook.com brought in 33 visitors, or 5.29% of the example sites traffic. We can follow the activities of these users, and identify how many of these Social Media referrals converted into a customer.

Looking at the math, lets say we had 100 visitors from Social Media sources, and 4 of these visitors actually bought something. This gives us a 4% social media conversion rate.

Measuring Social Media ROI

Let’s say the average sale was $50, from four sales. Knowing that our conversion rate is 4%, we know that it takes 25 visitors from a Social Media source to generate one sale. Since the average value of the sale was $50, and we know it takes 25 visitors to make that $50, we can then value each individual social media referral at $2 each.

If the conversion rate changed over time, your numbers would change as well. You want as much traffic as you can get, but if Social Media brought in a thousand visitors, and still only 4 sales, we’d then have a .4% conversion rate. So we now need 250 visitors to make that one sale, and the value of a visitor is now only twenty cents. That said, if you can bring in visitors that are worth twenty cents each, and it only cost you a nickel each to do it, that’s a 400% return on those invested funds.

These numbers are averaged, but so are the numbers for TV, Radio or any other kind of advertising. You don’t get a pass just because right now “social media is cool”.

Ultimately, Social Media ROI would not be determined by how many “likes” you have on Facebook, or how many “followers” you have on Twitter. Social Media ROI would be tracked based on actual sales generated, actual leads, actual qualified people who were turned on to your service.

If it applied, you could also measure searches for a company’s name, and if the growth spiked, attribute some % of the difference to the traffic generated by Social Media, but making compelling social friendly content, and including calls to action within to pull folks to what you want them to actually buy, you’ll be able to see a clear referral count directly from Social Media sites, and those figures are impossible to argue with.

The mistake that Social Media folks make is by counting it as some amazing free standing concept. Social Media is part Marketing, part Advertising, and part PR, but it’s not some free flowing piece that shouldn’t still be bound by the same rules as everything else. What it comes down to is that Social Media “experts” are desperate to show value in their work, and the easiest needle to move is that “follower” count, that “like” count, both figures of course, being very easy to inflate artificially.

They can deliver a report that shows big %’s of “growth” because what they’re measuring cannot be quantified What CAN be quantified is legitimate sales. When someone buys your product or subscribes to your service and they were referred to your site by a link or a piece of content on a Social Media site, then THAT is what you track to measure ROI.

In the end, Simon and I seem to very much agree on the problem. He said, “Unfortunately in a lot of organizations social media sits somewhere between PR and Marketing and is therefore allowed to get away with “well its hard to tell” in terms of bottom line impact.”

That’s the issue. I compare SEO and Social Media to the fable of The Emperor’s New Clothes. Everyone is so afraid to say that the Emperor is naked because they’re afraid it’ll reveal them as having poor moral character. At the end of the day however, integrity is defined by doing the right thing, even when it isn’t popular. The Social Media Emperor is indeed quite naked.

The popular thing right now is to go “Ooooo Social Media!” and I know millions if not more is being spent daily on Social Media campaigns that only deliver on the intangible and fail to return in actual profits. There is always secondary branding value, customer retention numbers, sure, but at the end of the day if the effort isn’t resulting in sales, the reason you can’t track the ROI is not because Social Media is intangible, it’s because no return was made to measure.

Sometimes the ROI is just zero, and that’s what scares these folks into preaching the importance of numbers that cannot be used to out them as a fraud.

Or maybe I’m full of it? You tell me. Post your thoughts here in the comments!