Chris Selland is CMO at Terametric, a company focused on maximizing marketing ROI by helping marketers capture and measure all their channel marketing data. Chris is an experienced technology business development & marketing executive, with deep domain expertise in the areas of online and inbound marketing, strategic alliances, demand generation, and corporate development/M&A.
Chris originally published this post on November 14, 2011, and it is republished here with his permission.
One of the biggest challenges in calculating Return on Investment (ROI) from any type of marketing initiative—social or other—is in quantifying the actual economic value produced by it. After all, at least as far as your CFO is concerned, that is the ‘R’ in ‘ROI—and it needs to be understood in at least a general sense if you want his/her cooperation to invest in it.
As a marketer, you almost always know your costs—how much you’re spending on those tools, consultants, services and of course the value of your own and your team’s time that is being applied to the various campaigns and ongoing initiatives you’re running. Those are the invoices and salaries you are always asking said CFO to pay—that’s the ‘I’.
There’s no denying the fact that calculating the ‘R’ has always been challenging. In the famous words of legendary merchandiser John Wanamaker (a quote often mis-attributed to David Ogilvy)…
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
Customers almost never purchase directly from a marketing campaign, so how can one attribute the specific ‘R’ to a specific ‘I’ with any real precision?
However, that difficulty does not absolve marketers from making an effort. Especially since new marketing channels, technologies and platforms are making all of this much easier. As I chimed in on a Focus Q&A recently
“Metrics such as clickthroughs, conversions, ReTweets, Likes, etc… are more easily measured on social media than similar metrics for more traditional media, plus measurement and analytics platforms have improved significantly (and continue to).”
In other words, it may be difficult to know your specific ROI but your ability to model and measure approximate if not 100% precise answers is getting better all the time. A recent lawsuit, for instance, values Twitter followers at $2.50 apiece—while this may not be your organization’s exact number (it almost certainly isn’t) it at least provides some context that you can use to analyze your Twitter activity and determine whether the I’s you’re making justify the R you’re getting in the form of new engaged followers.
The important distinction is that ‘engagement’, ‘loyalty’, ‘influence’, ‘reach’ and similar commonly cited ‘metrics’ are qualities that our marketing activities are driving but they can only be measured by building models that are built on more specific and quantifiable figures such as:
“How many new followers did we get from that last campaign?”
“How many recipients clicked through on that link we Tweeted out and downloaded our White Paper?”
These numbers can be measured and counted—as can the investment required to produce them.
The point is that measurement is challenging but analytics are rapidly improving, and there are more and more third-party data points that one can use to at least approximate their ROI calculations. ROI is essentially a modeling exercise with the end goal of advising on relative decisions between the trade-offs we as marketers must make every day—where do we invest, how much, and why?