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    How Do You Measure The ROI Of Social Media?

    Sam Mutimer

    You’re expecting to see some valid formula that can justify your spend on social media, right??
    Well let’s look at what ROI means.
    First, a definition;
    1. ROI = Net Profit After Taxes ÷ Total Assets (traditional formula) or
    2. ROI = (Net Profit After Taxes ÷ Sales) x (Sales ÷ Total Assets) (DuPont formula)
    ROI also has a few flaws…5 in total, but as an example – the above formula is skewed by length of life of the returns, capitalisation etc etc. In order to populate this formula, and hence derive a true figure for ROI, you need all the inputs says Luke Harvey-Palmer
    When considering this within social media, think about the value of the relationships you build through these social channels. Word of mouth is the currency of how people spend their money, and we’ll start to see the justification of ROE (return on engagement) rear it’s head this year.
    Alex Bogusky, Co-Chairman of Crispin Porter + Bogusky puts it really well. “You can’t buy attention anymore. Having a huge budget doesn’t mean anything in social media…The old media paradigm was PAY to play. Now you get back what you authentically put in. You’ve got to be willing to PLAY to play.” – Alex Bogusky, Co-Chairman of Crispin Porter + Bogusky
    After watching Gary Vaynerchuck in Le Web 2010…I couldn’t put it any better 😉

    Have a quick watch and let us know what you took from this. Will CEO’s, marketing managers and the like really start to justify their dollar spend within social media, once a formula can prove the ROI of a facebook fan? Tell us your thoughts below.