FREQUENTLY ASKED QUESTIONS
The classic definition of “return on investment” is earnings divided by the investment—no matter what the application. When calculating the return on investment for learning and development, the earnings become the net benefits from the program (monetary benefits minus the costs), and the investment is the actual program cost. The difficulty lies is developing the actual monetary benefits in a credible way.
The very basic statistical processes are all that are necessary to develop most ROI impact studies. Rarely are statistics needed beyond simple averages, variance and the standard deviation. Sometimes, hypothesis testing and correlations are necessary. These are very simple concepts and, by design, are simplified as much as possible.
Applications can vary, but usually include sales training, supervisory training, team building, executive development, communications, competency systems, software utilization, leadership development, diversity, orientation systems, compensation and benefits, reward systems, skill-based pay, career management, major projects and wellness initiatives. These topics make excellent applications and have been documented with case studies.
Social media is a broad umbrella and we are focusing on social media marketing. Other forms of social media, such as customer feedback, service or support, may not be held to the same requirements as marketing, although ROI analyses are possible and these uses may have much greater potential than promotional marketing.
As with general marketing, it is reasonable to expect that emerging marketing channels or new strategies may not generate a positive return in the short term but offer high profit potential once improved and increased in scale. When experimenting on a small scale or building critical mass (such as Twitter followers) that can serve as an asset for future larger scale initiatives, ROI expectations are set based on longer term returns and not just on the current period impact.
The immediate outcomes of social media marketing initiatives are absolutely important. These measures can serve as the early indicator of the business outcomes that follow or as a diagnostic assessment of where the marketing program has strengths and weaknesses. They should not be program objectives since there are some forms of marketing that can generate short term outcomes that fail to have any influence on purchase decisions now or in the future.
As mentioned earlier, the use of ROI projections is also beneficial here since your strategy would clearly establish the expected connection between immediate outcomes and sales contribution. In addition, a broader purchase funnel framework that examines the path to purchase across all forms of marketing can help relate metrics such as engagement or awareness to sales, regardless of the marketing channel. If these measures are not in place for other media and marketing, it does not make sense to develop them only for social media marketing.
No, it’s not necessary or possible to measure the ROI or incremental impact on all marketing investments, although it’s certainly good to track all readily-available metrics. Measurements must be prioritized based on the profit potential from improved effectiveness and the cost. It is more important to measure marketing initiatives and programs that consume a large portion of the overall budget, play a strategic role in influencing outcomes or are in need of major improvements in effectiveness. If the social media spend is low, running on a small scale or not critical to the business, measurements may be lower priority.
In addition to assessing executive motivations, look closely at your own. Are you pursuing ROI measurements strictly for reporting and justifying your spend or are you designing these to improve effectiveness? As we established earlier, measurements should be prioritized based on the potential gains of applying the insights to future cycles of marketing. The first two priorities are 1) marketing programs that are repeatable and 2) marketing programs that are scalable. One time social media programs or initiatives that can only be run on a small scale are most likely lower in priority.
In addition, in order to gain big wins in effectiveness, design your measurements to understand strategies, buyer behaviors, leakage points in the purchase funnel and the impact of integrated marketing. The knowledge into strategies and the influence on purchase decisions can be more broadly applied across social media and other marketing programs. This type of insight will be more valuable over time since social media technologies will change at a faster pace than the general stages buyers go through in their path to purchase.