ROI on Social Media – Research Report.

Background
This project was not intended to attach a dollar sign to a social relationship but rather being able to commit a business to invest in social media and allow a tangible method to manage a budget and calculate a return on investment

Objective
Unlike the typical marketing ROI, where the return is measured in leads, eyeballs or other intangible values while the investment is entered in a currency, it was our objective to calculate an ROI where we have both INVESTMENT and RETURN in the same currency. The model needed to be mathematical compatible to: Financial ROI = measuring the investment in a given currency and compare it with the corresponding profitability or margin in the same currency. Dollars on both sides of the equation!

Initial Work
In search of a robust method for Social Media ROI we started with social media’s closest ancestor “marketing”and tried to find well-proven methods for marketing ROI. Search engine results for “Marketing ROI method” were quite unexpected. While random key strokes like “dfasdf” returned 172,000 findings, Marketing ROI method returned only 3 and they were actually irrelevant. So even “somewhat” acceptable methods for calculating marketing ROI are not available And that is actually OK. Is there a ROI for bookkeeping? No. Is there a ROI for facilities management? No. Is there a ROI on producing business cards or creating a logo? No. Is there a ROI on providing support to our customers? No. All this is financially speaking “Cost of doing business”. This lead us to believe that we are hunting a ghost if we are looking for a Social Media ROI.

Social Media Effects
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.

The ROI Formula (SOMA-Formula)
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 CM 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

CM / IC = 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.

Unlike traditional marketing and PR, Social Media actually provides a way to calculate an ROI, 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”.