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Understanding the Social Media ROI Cycle
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Jamie Turner is the chief content officer of the 60 Second Marketer, the online magazine for BKV Digital and Direct Response. He is also the co-author of How to Make Money with Social Media. He’ll be speaking about his Social Media ROI Cycle at the SXSW Conference in Austin on March 15.
Not long ago, I wrote about how to calculate the ROI of your social media campaign, which generated a lot of interest from the social media community. The article outlined how businesses can use Customer Lifetime Value to calculate the return on their social media investment.
After writing the article, I started analyzing how businesses go about setting up, launching and running their social media campaigns. My conclusion is that there are three distinct stages to this process, which I’m calling the Social Media ROI Cycle. My rough estimate is that about 50% of the business community is still in the Launch stage, about 40% is in the Management stage and about 10% is in the Optimization stage.
Each one of the three stages has its own nuances, so let’s take a look at what happens during each. The percentages referenced in each stage are estimates based on my own experience.
Stage 1: Launch
During the Launch stage, 100% of a company’s focus is on setting up the big four: LinkedIn, Facebook, Twitter and YouTube. Some companies focus on the big four plus more such as Flickr, e-newsletters, blogs, SlideShare and other social media platforms. But most companies kick things off by quickly getting into the big four networks simply as a way to have a social media presence.
The approach during this Launch stage is very executional with very little long-term planning. The primary objective is simply to get started. After all, those in charge want to ensure the brand is utilizing cutting-edge techniques, so the marketing department typically responds by jumping in without much plan for the long haul.
Unfortunately, the results of the Stage 1 process are negligible. Sure, you’ll be able to claim that you’ve “got a social media campaign,” but you won’t really see much traction unless you move on to Stage 2.
Stage 2: Management
During this stage, roughly 60% of a company’s efforts are focused on the big four (or the big four plus more). About 10% of the focus is on creative and offer development, 20% on tracking quantitative metrics such as traffic, inbound links, Facebook “Likes,” etc., and about 10% on qualitative metrics such as brand sentiment, survey results and customer polls.
The approach during the Management stage is still very tactical, but the focus is on mid-term instead of short-term results, which is an improvement over Stage 1. The corporate objective at this stage is to engage prospects and customers in some way that gets them to connect with the brand. Ideally, this would mean buying something, but it can also mean downloading a white paper, liking a Facebook Page, responding to a survey, or any other measurable evidence that they’re connecting with your brand.
Stage 2 is where many of the more sophisticated companies find themselves right now. They’re managing their social presence, testing creative ideas, tracking quantitative metrics and analyzing qualitative data.
Most companies today are still at either Stage 1 or Stage 2. But many of the companies I work with have started to reach the Stage 3.
Stage 3: Optimization
About 25% of the focus at this stage is on the “big four plus more,” and about 30% is evenly split among creative and offer development, quantitative metrics and qualitative metrics.
Another 25% of a company’s focus is on improving conversion and optimization of campaigns. What do I mean by that? It’s all about tracking inbound leads and traffic across social media platforms, using tools such as Atlas and DART, and watching those leads turn into customers, either on e-commerce landing pages or through B2B lead generation programs.
It also means testing your way to success with social media campaigns. This can be as simple as trying two different landing pages to see which one drives more clicks. Or, it can be as complex as multivariate testing that analyzes more than one component at a time.
The final 20% of a company’s efforts in Stage 3 include measuring the success of the campaign on an ROI basis. And yes, you can measure a social media campaign on an ROI basis, despite what some social media “experts” will tell you.
The process involves understanding your Customer Lifetime Value (the total revenue the average customer generates for your business during the lifetime of their engagement with you) and comparing it to the results generated by your social media campaign.
For example, if you know the typical customer spends $10 per month with your company and stays loyal to your brand for an average of three years, your Customer Lifetime Value is $360.
Many companies are comfortable spending 10% of their CLV to acquire a new customer. So, in other words, they’ll spend $36 to acquire a new customer who will spend $360 during his or her engagement with the brand.
If your social media campaign costs, say, $36,000 a year to run, and it generates 1,000 new customers each year, you’ve got a winner on your hands. (For a more detailed explanation of this process, please see my previous post, HOW TO: Calculate the ROI of Your Social Media Campaign.)
The Bottom Line
In the end, all roads should lead to social media ROI. After all, businesses don’t do social media to be social, they do social media to grow sales and revenues.
If you carefully navigate your way through Stage 1, Stage 2 and Stage 3, you’ll eventually be able to go up to your CFO and say, “Hey, Chief Financial Dude, remember when you told me we wouldn’t be able to measure the ROI of our social media campaigns? Well, we’re already doing it, and we’re making a profit, you knucklehead. So there!”
Of course, you don’t have to use those exact words, but you get my point.
More Business Resources from Mashable:
- HOW TO: Calculate the ROI of Your Social Media Campaign
- Creative Constraint: Why Tighter Boundaries Propel Greater Results
- 10 Ways to Turn Your Local Business Into a Global Success
- 6 Top Tips For Managing a Coworking Space
- 3 Podcast Success Stories from Creative Small Businesses
Image courtesy of iStockphoto, ewg3D
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Hi Jamie, I agree, all three stages are very important, however wouldn’t you agree that companies would need to develop a robust “social media strategy” before they “launch”?
I.e.
1. Understand who your target market is (Personas)
2. Research who is talking about your brand and where
3. Research who is talking about your product(s) and where
4. Research your competition (direct/indirect) and see what they’re doing (good, bad etc)
5. Understand who your key influencers are – individuals, blogs, celebrities (wishful thinking!), forums etc
6. develop an amazing launch campaign based on 1-5 and select your social media platforms (big four + any other platforms if you’re a global company – E.g. Vkontakte – http://vkontakte.ru and
Odnoklassniki – http://odnoklassniki.ru/ rule the way in Russia – Facebook is very small in Russia)
Cheers,
Steve
I agree. Maybe plug that into stage 1: Approach. I would imagine there are several inputs and output artifacts that come with all this.
Wow, thanks for the help. This helps me continue to sell this idea that there is a ROI in new media. I think a large part of stage 1 also should include, listening.
Great analysys!
Just one question: do you think there are specific, measurable points when the company should change from stage 1 to stage 2 – and from stage 2 to stage 3?
And thanks for the tips, they can be really useful!
Cheers,
Francisco
Spot on Jamie.
And while I agree with Mr. Grech that companies should develop a strategy before launch, the reality is that most don’t. I’ve seen countless CCOs launch their social media program based on the edict of the CEO who wants to “get our social media presence established!”
The warning should be for those of you who haven’t yet started this venture, begin planning now with a simple purpose statement and realistic objectives you can use as a building block. If the day hasn’t come yet, it will come soon.
Excellent post, Jamie. Always good to know we’re not the only ones out there talking about the reality of Social driving sales and other measurable (read: revenue-focused) results.
However, there’s still an importance to driving community growth and interaction as social is not only a chance for users to interact with brands, but for brands to interact and learn from users/consumers. Every design/product-focused message sent to a community is a chance for marketing and product research. If you’re able to more-accurately and effectively communicate with your target audiences, the less time those communications take – allowing you to work smarter and with less budget.
It’s an exciting time, folks – a time when I think you’ll see companies sink or swim (agencies and brands alike) based on their approach and dedication.
Cheers,
@ronschott
Sr. Strategist, sCRM + Campaigns
Spring Creek Group
How can Social Media ROI be applied to city government social media campaigns ?
You’re probably spending money as a government (either through salaries or direct payments for marketing) on outreach and communication – I’d hope.
One of the easiest ways is to compare traditional efforts to similar efforts on social media. Take into account hours and hard costs put aside to accomplish tasks and then weigh those against similar actions and outcomes from social. If you’re looking at things like Web traffic driven from paid search ads vs. traffic driven from social, the comparison is fairly easy.
Things get murky when you start comparing other efforts that might not translate so straight-across-the-board, but the important thing is to decide how you’ll measure/compare and stick with that for long enough to make some real analysis. Then, after that, the important thing is to remember to adjust your formulas as the markets and pricing change.
Cheers,
@ronschott
If you want to be a very publicly responsive city government, then social media is a good way to do that. You can promote your Twitter feed, and your Facebook fan page, and put out a press release to local news stations so they can inform their viewers about the new public accessibility by your city government. If you’d like to discuss this further, you can contact me on my Facebook fan page at Buzzworthy Social Media.
http://www.facebook.com/BuzzworthySocialMedia
I dont think linkedin fits into a social media ROI cycle at all.
It does especially if your business model targets professionals / B2B.
E.g. a shop that sells Golf clubs and golf paraphernalia – Linkedin could be one of their best platforms to engage on and provide targeted ROI – most business people play golf (excuse the generalisation but it is a fact!)
Also, your company can check out what questions and answers relate to your business / products and engage with people by helping them. Polls can drive ROI too – lots of options…
LinkedIn is where the decision makers are…if you are marketing something requiring high level decison making, LinkedIn will provide good ROI on effort spent.
Hi Jamie,
You covered some good points here. Integrating social media into business plans is a good idea and necessary in today’s world, but it seems like each individual plan needs to be tailored to the needs of your specific industry. For example, a conversion based company might have different expectations compared to another company trying to simply increase their blog readership. The latter seems to have less concrete ways of tracking growth, aside from clicks alone. Having said this, I was curious as to how you might tweak stage 3 to accomodate social media branding efforts (..such as promoting blog readership)?
Jamie,
I enjoyed your article, but I would say launching with short term goals in mind is going to make it harder to calculate ROI down the road. I personally think its best to have your strategic objetives laid out before you lauch a social media, or any, initiative.
This allows you to benchmark up front, so you know how and if your program is moving the needle, and decide what objectives your going to measure as you move forward.
I know a lot of companies are trying to get into social before its too late, its already getting pretty late in the game. But I believe moving without a plan can set you up to fail.
A little planning up front can pay big dividends down the road.
Great post and nice infographics. I feel that in my experience it is sometimes difficult to cross from stage 2 into 3 (especially from a tracking standpoint), but the payoff is well worth it!
Hi, Everyone —
Lots of great comments here. Here are some answers to your questions:
• Steven, your question was answered by Paul who said that the model above reflects how most companies simply dive into social media without much forethought. Of course, the best way to get into social media would be to do as you mentioned, which is to think strategically about it. But most companies simply dive in first, then starting thinking strategically late in stage 2 and stage 3.
• FranciscoRois, the jumping off point from stage 2 to stage 3 should be based on an analysis of how well the company is executing stage 2. If you’re at a B or a B+, jump to stage 3.
• Joshpodolske, your question is answered in my original post called “How to Measure the ROI of a Social Media Campaign.” (See link in this article.)
• Khaliph, I believe RonSchott answered your question.
• Dave, the ROI of a social media branding campaign can be measured two ways: 1) a lift in sales after the campaign launches, and 2) cost savings vs. what you would have to spend to run a campaign on paid media. (For example, the Old Spice YouTube campaign has been seen by 130 million + people. To get that kind of impact on network TV, you’d have to spend over $5 million.)
I hope that helps.
Some, but not all, of what we’re talking about here is covered in my book (shameless plug) published by the Financial Times Press. You can check it out here: http://tinyurl.com/2aoddzs
Thanks!
– Jamie Turner, co-author of “How to Make Money with Social Media”
Hi Jamie,
Thanks for your shameless plug – looks like a great book to buy (Amazon UK link: http://www.amazon.co.uk/gp/product/0132100568/ref=s9_simh_gw_p14_i2)
I agree that clients generally dive straight in – it is an everyday battle getting clients (large and small) to buy into a strategy phase…even if they don’t, I’ll always push for a “light” audit – at least there’s some form of research and planning.
Thanks,
Steven Grech, Head of Strategy
http://www.lightmaker.com
Hey, Steven — I was born in the U.K. (to American parents) and will be in London on May 26th for a book tour.
Stay tuned — I’ll be sharing details about the visit on the 60 Second Marketer website in the near future.
See you,
Jamie
I also liked the post. However, the example you gave to calculate ROI is based on *new* customers. How do you take into account the percentage of followers who are long-time fans in the calculation? In other words… how do you determine who’s new and who’s an established customer in order to square your Social Media ROI figures with your boss? Not every follower will be adding additional revenue.
It seems, if it’s a retail brand, tracking actual purchases off the social media links within your custom content would be a better way to quantify ROI, no?
Are we still misusing the term “ROI”?
Jamie’s stages make for decent infographics, but I still firmly believe that the acronym “ROI” has no place in the world of promotion (social media marketing, social PR, or social whatever). And worse yet, using the term furthers a dangerous misunderstanding that actually prevents so many companies from using these tools — the fallacy that a good reputation can be quantified in dollars and cents. You want to know what the ROI will be on a Facebook page for your B2B consulting firm? How the hell would I know? We can get a fairly clean ROI figure if e-commerce is involved, but what if a “win” is a downloaded white paper? The monetary value for that mouse click is fiction, plain and simple.
This is the way it’s always been in PR; the old AVE was just as nonsensical as today’s social media ROI. And as long as we pretend that we can provide figures that don’t exist, companies will continue to ask the wrong questions.
I disagree, Kate. There is a media equivalency value to a downloaded white paper, new fan, view of video, etc. Companies pay certain amounts for those, or derive certain values from them, and they can be included in any social media ROI calculation. A tool that can help is http://www.socialeye.com
Hi, Kate –
Thanks for your comment about Social Media ROI. It was well-written and certainly raises some important points.
That said, I’m afraid we’ll have to agree to disagree on this one. Social Media ROI is definitely calculable — even for a B2B consulting firm using Facebook to drive people to download white papers.
I discuss this calculation in-depth in my book, “How to Make Money with Social Media.” http://tinyurl.com/2aoddzs
It’s also covered in the article I wrote on Mashable a few months ago:
http://mashable.com/2010/11/05/calculate-roi-social-media/
I’m glad you brought the topic up because I’m sure it’s on everybody’s mind. I’ll admit, the methodologies I provide aren’t 100% bullet-proof, but they’re much better than saying, “Well, we THINK it’s working, but there’s no way to know for sure.”
Again, thanks for your comment. I love a good debate.
Sincerely,
Jamie Turner
Thanks for the reply, Jamie. I do like what you’re trying to do here, and I can definitely agree to disagree. But I think there’s an important difference between the real metrics for social media (or any kind of promotional activity) and something as purely mathematical as ROI. As I mentioned a second ago on Twitter, promising social media ROI is like telling a client you can give them the volume of a square (when you should be talking area). Eventually, when you can’t really deliver volume, the client ends up thinking that squares are bull$#!*. And who can blame them?
Again, value for social media (and PR and marketing) is vital, and in that spirit, I think Jamie is pursuing the right goal. But using the right words, with all of their implications, is nearly as important.
Good points here, but I think its important to take a step back and think about why social media is so powerful in the first place. People trust people overwhelming more than marketers or brands. When we talk about engaging with customers and prospects, wouldn’t it be powerful if brands invited their best customers (aka Brand Advocates) to join the conversation too?
Advocates are a distinct segment as compared to fans and followers. They do not merely like or love a brand – these highly enthusiastic customers go out of their way to recommend your brand.
Every company has passionate defenders (even in categories like telecom, software and financial services), and by energizing them to Advocate for your brand via social media you amplify positive Word of Mouth.
For example, Chili’s Grill & Bar has created a powerful marketing force of over 500,000 Chili’s Advocates. These enthusiastic customers have:
· Created over 100,000 reviews on sites like Yelp
· Shared over 100,000 offers with their social networks
· Generated more than 25 million trusted social media impressions
Here is a larger look at the power of the Advocate Channel to drive qualified leads and turn social media directly into sales. http://bit.ly/hSpcbw.
Remember, trust in social media starts with each other – Michael Brito of Edelman Digital echoed this point at an event on the power of Advocacy this fall. http://bit.ly/e4K7dB.
*Everyone reading this should buy Jamies book. It’s a great investment. I’ve read it several times over*
I agree somewhat with Kate S and her comment. Measuring social media ROI is impossible at times. You can’t put a dollar in = dollar out calculation (the true meaning of ROI) on every social media activity, be it in the form of PR, marketing, customer service, or customer retention.
I applaud Turner in his effort to track ROI as much as humanely possible and I think as professionals we have to try the best we can to do so whenever the opportunity presents itself, but it would be a huge fallacy to attempt to tie every action pertaining to social media back to hard numbers.
Good post – I think it’s important to get clients moving in this direction. Most know they need to, and many have no real idea where to start, other than “I have a Facebook page”.
I had a feeling Kate was pretty smart.
Here’s something she said in her follow-up that, I have to admit, is a well-crafted way to express her point-of-view on this:
“…promising social media ROI is like telling a client you can give them the volume of a square (when you should be talking area). Eventually, when you can’t really deliver volume, the client ends up thinking that squares are bull$#!*. And who can blame them?”
Well done.
If I were to craft a summary of our comments on this, it might go like this:
“In many cases, you can calculate the ROI of a social media campaign (particularly if you’re an e-commerce company that drives prospects to a landing page via social media). But saying you can calculate social media ROI in a bullet-proof, quantifiable way 100% of the time is risky, in particular if you’re using social media only as a branding tool.”
Thanks for the stimulating debate. I’ve enjoyed it. And Jason, thanks for your kind comments about the book.
See you at SXSW!
Best,
Jamie
Ha! Well, I’m glad the analogy worked. Coming from PR, I do tend to look at the branding/reputation-building aspects of social media, and that’s definitely the weakest area for the ROI calculation… Thanks again for the conversation!
Systematic way for Destruction…!
Awesome. Everyone should read, as its totally too good. Thx for sharing the good stuff
Jamie – You outlined three critical stages of social media development, however I think there are more opportunities for businesses using social media channels than just considering sales and revenues. All areas of an organization can benefit from integrating social media across the enterprise and this can lead to many more opportunities. As Ron pointed out, businesses can better learn from consumers and inform product development and messaging. There are also opportunities to improve customer service, drive awareness, gain competitive insight, manage and prevent crises – just to name a few. I think enterprise-wide social media integration should be included in stage three as it ultimately leads to greater innovation across the enterprise and therefore, stronger ROI in the long-term as a result.
Thanks,
Jennifer Rodriguez, Visible Technologies
Great post, Jamie—I love the graphics!
For someone who’s new to social media marketing, can you describe what a social media campaign budget of $36,000 may look like?
Do you have any suggestions on what to keep in mind while developing a budget for social media?
Thanks in advance, Jamie!
Benjamin Nichols, Aspiring Social Media Marketer
Hi, Benjamin –
With $36K to spend on a social media campaign, I’d be sure to use the hub-and-spoke model that’s outlined in my book, “How to Make Money with Social Media.” (Please excuse the plug.)
The hub-and-spoke model has your primary end-point as the hub. So, for example, if you have an e-commerce landing page, that would be the hub.
The spokes are all the social media tools that are used to drive people to the hub. So, for example, your YouTube channel, your LinkedIn page, your Facebook page, your blog and your Twitter handle would all be used to gently (not forcefully) drive people to your landing page.
If you don’t use e-commerce for your business, then you can still have a hub. The difference is that instead of selling products on your website, you’re getting people to download a white paper. That’s the hub. From there, you can capture their information then re-market to them — eventually getting them to buy your product via traditional means.
As mentioned, all this is detailed in “How to Make Money with Social Media” which is available at Barnes & Noble, Borders and other fine bookstores, including Amazon: http://tinyurl.com/2aoddzs
Again, I apologize for plugging the book.
Good luck!
– Jamie
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Thanks again to everyone who has commented on this post. It’s generating quite a buzz around the internet.
For those of you who are interested in downloading SlideShare slides of this concept or in viewing a 60-second YouTube summary of it, you can do so here: http://tinyurl.com/4dzq8a5
Thanks!
– Jamie Turner
I’ve referred to the ROI calculation article and came back to this one, and it’s all great material. Thank you. However isn’t 30% of the annual revenue a bit high to spend on a social media campaign alone? According to the calculation, a campaign costing $36,000 generates 1000 new customers who in turn generate $360,000 over 3 years, hence $120,000 annually. Which means that the campaign cost 30% of the annual revenue.
Good transactional analysys and its nice to see social being tied in with the familiar customer lifecycle. I would agree with Steven Grech that there needs to be a strategy in place first because social is so much more than a channel or a campaign – this isn’t advertising after all.
Which brings me to the comment “businesses don’t do social media to be social, they do social media to grow sales and revenues.” I dont disagree they do stuff to grow sales, but ‘being social’ is the key to driving business so i do actually think that businesses can do social to be social.
Social media, unlike any other marketing or customer engagement initiative/channel/strategy blurs the line between customer and employee and therefore ‘being social’ as a behaviour is just as valid as a ‘social campaign’.
Hi, Folks –
Glad to see the Social Media ROI Cycle article is still stirring up some terrific input and comments.
Gareth, you have an interesting point — that businesses actually do do social media to “be social” and that the reason they do it is because it’s a step towards driving business. I think it’s safe to say that we’re essentially in agreement but may be coming at it from two slightly different directions.
Diala, you’re correct that spending 30% of revenues on a social media campaign would be way too high. If I wrote that in one of my previous articles or comments on Mashable, let me know where it is because I got the math wrong and I”ll have to update it. (Hey, it happens.)
An acceptable advertising to sales ratio for most companies is between 2% to 10% of revenues. The costs for the social media campaign would come out of the 2% to 10%. In other words, the social media campaign would take up part of the 2% to 10%, not the whole shebang.
I wrote about industry norms for advertising to sales ratios in a post on the 60 Second Marketer. You can read about advertising to sales ratios on the 60 Second Marketer here: http://tinyurl.com/5u2sevz
Thanks again for all the comments. And Diala, let me know where that article or comment was so I can double check my math.
Thanks!
– Jamie
Nice diagrams and all, but you’re all over the place with this. What rare little slivers of this post actually touch on ROI are assumptive, disjointed and confusing. I want to say something nice about this, but it’s pretty awful.
Hi, Oliver –
Thanks for taking the time to read the article and share your thoughts on this. I’m sorry you didn’t agree with the content.
You’ll see from the previous comments that most of the readers enjoyed the post. Those who didn’t agree with what I wrote provided constructive feedback and input.
I think if you examine the comment stream across most online publications, you’ll find that there’s a movement away from the snarky comments of the past towards comments that provide readers with new insights, more clarification and better understanding.
In my case, having a polite and respectful approach to comments has served me very well. I suspect, if you choose to adopt that approach moving forward, you’ll have as much success with it as I have.
All the best.
Sincerely,
Jamie Turner
Hi Jamie, Really Useful stuff..!! I’m Curious to know how the newbie Google Plus fits in your Social Media Strategy? Or is it too early to predict?
Hi, Folks. Thanks again for all your great comments. AMTIndia asked how Google+ will fit into this. The short answer is — it’ll play a big role. In fact, the Big 4 may just have to become the Big 5.
I’m a fan of Google+. I think it’s a terrific platform because it’s cleaner and more useful than Facebook. In fact, I wouldn’t be surprised if Facebook became the next MySpace in about 5 or 6 years. It’ll take a while, but I think people are starting to tire of Facebook and might just navigate to Google+.
Thanks!