People who work in social media often share a common problem – budget.

ROI is a business measurement. It doesn’t care whether you’re investing in social media or pumpkin farms. It has non-variable values and a concrete formula.

ROI = (gain – cost) / cost

CFOs measure a social media investment in dollars, so that’s how we must gauge the return. Which means those of us measuring the gain in ‘Likes’ and ‘@mentions’ are doing it wrong. We need to turn those non-financial, feel-good case study metrics into dollars.

I call it ‘Measuring Social Media ROI in Three Steps’.

Step one:

Get your hands on the client’s financial data. Draw a line in the sand. This will be the starting point.

Step two:

Track and measure the social media activity. Did you socialise your client’s call centre? Or introduce a gift finder app to your Facebook page? This is probably stuff you’re already measuring, like the number of mentions or interactions.

Step three:

Layer the financial data from step one, and the social activity from step two. Put them on the same timeline. Look for patterns and isolate them. Then prove or disprove a correlation between revenue and social media activity.

That’s it.

Three steps. Not easy, but no one said it would be.

Sometimes proving correlation might be obvious, like an increase in conversions from those who use the gift finder app. But usually you’ll need to dig deeper. Maybe you’ll notice that the more people you service online, the less demand there is on your customer call centre.

Let’s see how we’d measure ROI on that:

1. Find out how many people are serviced via social.
E.g. 5000/month.

2. Salesforce says 10% of people serviced via social don’t pick up the phone, resulting in a deflected call. (i.e. A person who would otherwise have picked up the phone had their question answered on your Facebook page.)
5,000 x .10 = 500

3. Multiply the number of deflected calls by the average cost of call. For example it might cost your client \$20 to service each customer over the phone.
500 x \$20 = \$10,000/month

There you go. That’s \$10,000 each month of cold hard cost savings.

This might seem simple, but it’s an important process that few know enough about.

Try it out. Work with your client or finance department to get the data, track your social efforts then try to prove the correlation.

It may take two to tango, but if you can take the lead you’ll be dancing all the way to the budget bank.

BY Tim Evans ON 14 September 2011
Digital strategy director, Ogilvy Group Melbourne