This week I’ll begin a series of posts on Return on Investment (ROI).

I’ve devoted a lot of space on this blog to discussing ROI , because it’s a critical topic. Most recently, I posted concerns that social media marketing isn’t generating the kind of ROI users hoped for. ROI is a perennial question asked of marketers, not just for returns on their social media investment, but other marketing investments. Possibly, as an outgrowth of direct marketing, social media marketing gets more criticism because it SEEMS like assessing ROI should be EASY.

5 Steps for ROI in social media

Step 1. Set Objectives

Setting objectives may sound kind of simplistic and unrelated to assessments of ROI, but it’s really a critical first step. Without some notion of what you want to achieve, how can you assess ROI?

Obviously, the end game is SALES. But, since you’re likely not SELLING anything through your social media, you can’t directly measure Sales in calculations of ROI.

Step 2. So, what should you measure?

Here’s a handy infographic I created to show actions that drive success in social media:

ROI: Return on Investment in Social Media MarketingUnlike the sales funnel, you don’t have to wait for customers to fall out the bottom to realize ROI. Each phase in the hierarchy creates sales and generates ROI.

But, unlike the more traditional hierarchy of effects, the social media hierarchy depicts additional actions by your community that reflect loyalty, sharing, trust, and advocacy. These actions have effects far beyond creating ROI, but spread your message, increase your brand mentions, create a positive image for your brand, and encourage others in the social network to purchase the brand — thus amplifying your ROI across social networks.

Based on this infographic, you establish objectives for and measure each element in the hierarchy.

Step 3. Collect Relevant Data

Once you’ve set objectives and know what to measure, you’re ready to collect data. Some data are readily available from Google Analytics, Facebook Insights, or other sources.

Other data, must be collected using survey instruments or qualitative data collection from interactions on social networks and I provide some instructions on how to collect qualitative data from your social networks here.

I think it’s important to collect both deep data that provides a snapshot of where you are and high level data that plots trends — at least over the last month, 6 months, and year — if your social media marketing efforts extend that far. In plotting past data, be sure to capture and record major changes over the time span. For instance, if you added a new channel, Facebook made some major platform change, or Google made a major change to its search algorithm. In the monthly plot, you should also plot your own marketing efforts, such as a newsletter date, a new blog posts, or an important social mention.

Step 4. Analyze Data

Part of your analysis comes from plotting data against your marketing actions. You should also look at competitors marketing actions, especially their social media actions. As a final step, you should assess how external factors impacted your results. Let’s say, your competitor announced a new product or uploaded a video that went viral — your results for a few days might be off a little. Or, let’s say something popped in the news and keywords related to this news brought a lot more traffic to your site for a few days. You need to correct for these anomalies, because you’ll never reproduce them.

Now, look at trends from your plots. What are they telling you?

  1. Certain types of posts generate significantly more (less) visits
  2. Certain days of the week or time of day for sharing generates significantly more (less) visits
  3. Certain actions generate more (less) engagement — ie. comments, sharing, liking
  4. Certain types of content generate more (less) engagement
  5. Where folks come from

If you now match the trend between what HAPPENED in social media with your ROI, you should see a lag with similar shape. Thus, as the number of LIKES increased, you should see an increase in ROI — although a lag between them is normal.

A lag occurs because people don’t immediately go out and buy your product as soon as they like it. Some brands, such as a new restaurant, take a few days because people may not go out to eat the same day they liked the brand. Some brands, take longer. For instance, a new toothpaste requires I use most of my existing toothpaste stock. So, you need to understand consumer buying behavior to assess how long a lag you should expect.

The problem occurs when you never see the change in ROI. This might happen when you’ve “bought” likes rather than gain them organically. What i mean by “buying” likes is you’ve held a contest or something to make people like you. These likes may not reflect your target market and they may not even truly like your brand.

A longer lag is common in driving consumers down the hierarchy — from liking toward evangelism. But, the improvement of ROI is also bigger as you move down the hierarchy because these folks spread your message to their networks, thus amplifying your reach. So, don’t forget to spend some of your social media marketing effort on gaining more engagement and driving more evangelism.

Now, you can use your marketing costs and lagged profits to calculate your ROI. Better yet, you can establish the value (in dollars and cents) of each like, each comment and share, and each evangelist to your firm.

What information comes from qualitative or other deep data ?

  1. Evangelists — who they are, where they come from, and what process created them
  2. Detailed information about each type of visitor — demographics and on-sight usage information
  3. How people talk about your brand — what are their favorite features/benefits; what do they like least; are they having problems? What are their “hot” buttons
  4. What else your customers need — this is a great tool for new product development and improvements to existing products.

Step 5. Action

Of course, data analysis isn’t the point of everything we’ve talked about — and measuring ROI isn’t enough.

You want to improve ROI. But, how?

Well, certainly you want to do more of whatever worked and less of what didn’t.

In your analysis, your social network told you what they wanted. Now, do it.

OK, that’s enough for today. Tomorrow, I’ll get into the trenches and show you how to use Google Analytics and Facebook Insights to assess and improve your ROI.

As always, I welcome your questions and suggestions on this topic.