Social Media ROI versus Social Media ROA

One of the most important things that marketers overlook when they try and measure the returns of their Social Media investments is that they don't always know what they're measuring, and often end up confusing many of the terms, in a financial sense, relevant to the credible calculation of Social Media marketing returns.

Much Social Media research currently points to the fact that company social media interactions are generally better at increasing the sometimes rather vague term "brand awareness" than in generating sales. And that's where one of the measurement challenges starts. Indeed, there are so many more challenges like whether to consider tax, and how to determine which costs are variable and fixed and which are applicable to the particular campaign (or programme) being measured, or even how the value of the brand changed due to the social media interactions, and what the monetary quantum of that change was.

Without the space in a blog article to properly unpack the above paragraph (perhaps content for another blog post), another aspect to note is that in financial reporting terms, sales generate income, which is an income statement (P&L) item while brand (value) is an asset, a balance sheet item. So before you move on, be sure to understand the above fully if you wish to go on to generate credible measures of your Social Media interventions!

• If you sold goods by means of your Social Media marketing campaign:

If you sold goods, the assessment of returns, your Social Media ROI (return on investment), is relatively easy. In its simplest and most CFO-credible form, it can be defined as:

Social Media ROI = NOPAT / Campaign Cost

where NOPAT is Net Operating Profit After Tax and is directly attributable to the campaign at hand and Campaign Cost is the direct cost of the campaign that generated those returns

Critically - assuming that your objective is for your returns to have CFO-credibility - note that the timeframe of NOPAT must be compatible with the timeframe of the Campaign Cost. 

Taking it further, if your campaign generated sales, you can now also calculate your Social Media ROA (return on assets), where the asset is the monetary change in Brand Equity attributable to your Social Media campaign. Unfortunately, when working with an asset, calculating returns are not quite as simple (fixed costs vs variable costs vs timing vs attributability), but a feasible approach would not be dissimilar to the following:

Social Media ROA = NOPAT / Changes in Brand Equity

where NOPAT is as above, and Changes in Brand Equity represent the change in the value of your brand that is directly attributable to your Social Media campaign. 

Of course, calculating changes in Brand Equity (in monetary terms) is non-trivial and part of it is an expensive undertaking which would therefore probably rather be done on an annual basis with the rest of your brand assessments rather than on a per-campaign or per programme basis.

• If you didn't sell any goods as a result of your social media marketing campaign:

Well, firstly, this does not mean your Social Media campaign was unsuccessful. Indeed, you have more than likely impacted the value of your brand by means of the campaign, which could have an impact on future sales depending on the strength of the message/activity and to what extent the message/activity remains top-of-mind in the presence of competing messages from other companies. So while you wouldn't be able to measure ROI or ROA, you can measure changes in the value of your brand, given the points raised in the closing points in the previous section.

In conclusion, calculating Social Media returns is not difficult, but it can be tricky. Be careful not to confuse the measurement of Social Media campaigns with measuring the benefits of your Social Media Programme (a set of campaigns). Also if your marketing runs across media, then there may be contamination of the results from campaigns running in other media. This makes it very important to understand the data collection challenges of each of your marketing interventions in the context of Integrated Marketing, where Social Media is not seen as a discipline on its own, but rather as simply another medium to be leveraged in the process of communicating with your customers.

Remember, Social Media returns are a subset of your total Return on Marketing! Again, how they relate is probably a topic for another article.