Tuesday, September 13, 2011

ROI in Social Media: When 2 + 2 doesn’t equal 4.

When you listen to people talking about “Return On Investment” in social media, you will realize is kind of a complicated subject.

And it’s so because there are several different opinions: some people want to measure your social media efforts the same way they did newspaper’s ads or commercial spots on TV. Others talk about brand recognition, influence and recommendations.

My opinion is that we are not dealing with an exact science, like mathematics; therefore I have to say that 2 + 2 is not always 4. I will try to explain myself through an example:

You set up you social media promotional campaign with a 50 € budget. That’s all you have. You place your ads in Google and they do generate 1,000 impressions, out of which 100 people click on the ad, and out of those, 2 become your customers and buy 75 € each. Total: 150 € on sales! Easy, isn’t it?

We then calculate ROI for this campaign. You are thrilled, really happy because it turns out you ended up putting down less money than expected and the total campaign cost is only 45 €, (keep in mind, it’s just an example) and you made 150 € on new sales. Awesome, right? Your campaign has had a 233% ROI.

Up to this point, lovely, everything adds up: 2 + 2 equals 4!

Now, let’s continue a little bit further and see what happened with those two customers you made.

Customer A is a regular human being, like you and me. He bought your product and a month later he did have some difficulties using it. He then called customer service and was treated on a wonderful way. He was so pleased that he emailed three of his closest friends recommending your product, and his friends showed up directly in your store, also a month later, and each one bought 100 €!

Were you able to measure these results within your campaign? No, you weren’t. Would you’ve been able to predict these results to some extent? Well, if you weren’t listening to what was going on with your customers, you couldn’t. Were these results positive for you? Of course they were. In this case, 2 + 2 was even better than 4, much better!

And what happened with customer B? Well, more or less, the same with a slight difference: When he called customer service to request assistance in solving his problem, he was treated like nobody deserves, basically being told to work things out by himself. Results? Of course, customer B got really, deeply upset, so upset that he promised not to buy from you again.

But he didn’t stop just there. He felt so frustrated that he twitted about his bad experience with your company to more than 500 followers and commented it on his blog, which gets around 1,500 visitors a month, because it happens customer B was a very influential person.

So, what happened then? Well, you’ll never know, because there is no way for you to find out how many of those 500 followers or 1,500 visitors will take his advice and not buy from you. Maybe just a few, maybe all of them, in the worst case, all of them. You will never know.

Unfortunately on this case, 2 + 2 didn’t make 4. It did much less than that!

Return on Investment is a subject you should look at carefully and consider analyzing your social media efforts from a different prospective, and based on your goals. It’s for sure you’re going to get measurable results. That is definite, but you shouldn’t measure results the same way it was done on traditional venues, like newspaper, magazines, TV or ecommerce.

Social media have something that makes them unique: they allow you to build bi-directional, mutually beneficial relationships with your customers, listening to what they’ve to say about your product, offering them relevant information so that they become loyal customers, or in the worst case, to be able to predict any potentially negative situation and act accordingly.

What does it have to do with you? Had you been monitoring what people were saying and sharing about your company or products online, you would have been able to do two very valuable things:
  • Thank your customer “A” by referring you with his friends, turning him into a loyal brand prescriber.
  • Offer your customer “B” an early compensation for his bad customer service experience, keeping him from turning the situation into a reputation problem.

What do you think? It’s 2 + 2 always 4? Or it depends on…?

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