Social Media ROI methods differ between Sales and Brand

A post recently appeared in a LinkedIn marketing group on measuring social media ROI, and aspect of calculating marketing ROI in an Integrated Marketing context. While I have covered this aspect in this blog already, it is fast turning out to be one of the subject areas that keeps me excited, so of course I replied to it!


Here is an outline of my response to the post: 

While there is already much literature about the measurement of social media ROI from a sales perspective, little has been written on social media 'ROI' from a brand perspective. Yet with brand being the reservoir of future cash flows, this is where it gets really interesting.

From a financial perspective - we are after all talking about ROI - sales generate ROI, while brand creates an asset (often recorded on the balance sheet in corporates) which generates sales indirectly once brand equity becomes customer equity. In this context, changes in returns on brand equity can rather be considered ROA - Return on Assets, rather than ROI - Return on Investment. It's also this asset which impacts the value of the company - very important information if you're in the market to sell your company or to raise capital!

Sales (Customer Equity and Contribution)

Figure 1: Some previous work done in the field of Customer Equity calculation, with the principles being  relevant to both traditional and social media marketing effectiveness measurement. I presented this at "Branding in Banking and Finance 2011"

Calculating social media ROI resulting from sales  is the easier part IF your business processes and systems are reasonably up-to-speed. This involves your systems being able to capture the source (channel) of the sale and perhaps even information on the relevant source campaign, information gathered either at POS (digital or secondary physical Point of Sale) or by other means, all preferably unobtrusive to the customer.

Indeed, this is why most social media ROI calculations are hard - while you may easily have the costs of the social campaign at hand, there is often too little information identifying the source (e.g. Twitter) of the sale, making it difficult if not impossible to calculate social media ROI. I guess that would all qualify as part of the huge cost of poor business operating model integration. However, it's not an excuse for non-measurement. It can still be done, although it's harder to do.

For your calculations to have CFO credibility, be sure to match the timing of spend with the timing of sales, taking note of appropriate lags. It's not great presenting ratios that can be shot down in the boardroom due to poor methodology, thereby negatively impacting the credibility of the whole team. When in doubt, get your beanie to help with ensuring the basic approach is sound.


Brand (Brand Equity)

Figure 2: Some previous work done in the field of Brand Equity assessment, IN MONETARY TERMS, with the principles being  relevant to both traditional and social media marketing effectiveness measurement. I presented this at "Branding in Banking and Finance 2011"

Like most methodologies concerned with quantifying brand equity, it is a costly exercise requiring market research. It's therefore best to piggy-back on some of your other surveys measuring brand affinity.

Note that interpreting brand equity as 'a reservoir of future cash flows' requires a secondary methodology to interpret brand affinity statistics in monetary terms. Given that most folk reading this thread are probably more interested in sales ROI than brand returns, I wrote a short overview article about 6 months ago entitled, "Assessing the contribution of your Social Media interventions to Brand Equity".


In conclusion, what's important in all of this is that while social media returns and growing brand equity are critical measures, even more so in the frontier social media space, it cannot be done well if you can't reasonably identify the channel at the POS (e.g. Twitter), or the market ('followers') you're engaging with. In other words, there may be a lot of basics that are not in place, making your social media ROI measurement challenges much larger than they need to be.