Social Media ROI

2
368 views

Share on LinkedIn

In search of a robust method for Social Media ROI we started with social media’s closest ancestor “marketing” (feels like the evolution from ape to men) and tried to find well-proven methods for marketing ROI. So I checked first Yahoo then Google for “Marketing ROI method” the results were most extreme – try to enter some random key strokes like “dfasdf” you get 172,000 “findings” non for a METHOD on marketing ROI. This lead us to believe that we are hunting a ghost if we are looking for a Social Media ROI.

But in social media we have a few very powerful mechanisms like customer referrals, customer advocacy, customer content contribution and several other contributing factors which all help a company financially to make substantial improvements, when done right way beyond any of the previous market interaction models.

Without going too deep into all the methods and techniques here is a financially verifiable and mathematical doable ROI calculation for Social Media:

Contribution Margin (CN) in currency generated from externally referred customers
over interaction cost (IC) in currency for human interaction and other cost to manage and engage in the ecosystem
= Social Media ROI (SM-ROI).

With the “SOMA-Formula” for social media ROI we have US$ or “currency” on both sides of the equation. And guess what we have benefits from the investment for both: the business AND the customer community. Of course this is only possible if you know your ecosystem and if you did your “customer mapping” as we call it, but with the tools we have today this is easily possible. Here is a bid more on Social Media Academy

The ability to finally calculate a Social Media ROI is another important piece in the corporate social media puzzle, that can be taken into the books by a CFO.

Thanks to all the students of the Social Media Academy who contributed to formulate this model – hence “SOMA-Formula”.

Let us know what you think, if it helps, what else you may add to this. Do all of us a favor – run it by your CFO for feedback.

@AxelS

2 COMMENTS

  1. Hi Axel

    Great to see you writing at Customerthink. John Todor speaks very highly of you.

    Here’s an idea. The ‘Referral Value’ of customers that you set out is pretty well understood by now. Kumar has been writing about it for some time in journals like HBR and in his recent book on ‘Managing Customers for Profit’. But networks of customers themselves have a value, irrespective of their constituent customers’ behaviour, particularly where they are on one side of a multi-sided-market like eBay or Amazon. Indeed, Kumar (again) calculated that the value of an incremental customer who never buys anything from eBay, is higher than that of an incremental seller, even though eBay only earns money off sellers. In other words. Your social network value calculation should be extended over time to include the incremental value of a customer in a larger network of customers too.

    Graham Hill
    Take Three Bites at the Customer Value Cherry
    http://www.customerthink.com/blog/take_three_bites_customer_value_cherry

    Any thoughts?

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  2. Hi Graham, thanks a lot for the warm welcome note. I agree on the extension of the social network value calculation. We are running a project an that very topic and hope to be able to present some solution in early summer.

    But yes – that is of great importance.

    Axel

LEAVE A REPLY

Please enter your comment!
Please enter your name here