Food for thought: Social Media and Return on Investment

Social Media is about social interactions between different people. But to create it you need to have a community you can interact with. And community building is fundamentally about relationships.

But how do you conduct a cost-benefit analysis on a relationship?

You can not measure a relationship and put it directly in numbers like you could do with your sales figures. Relationships are mostly intangible and exist on a lot of layers. But relationships base on engagement. And especially positive engagement can be a great KPI for relationships and is something measurable we can use as the source for our Measurement to find the ROI of Social Media activities. This measurement is different than the traditional ROI metrics, because if you would apply them to community building efforts, the ROI would actually be pretty small. The success of Social Media is different than of a classical PPC campaign.

To understand this better you can cite Einstein, who once said that if you judge a fish by its ability to climb a tree, it will live its life believing it is a failure.

One of our used metrics is a significantly reduced customer acquisition cost.

As you start building your community and investing in content, you not only drive some conversion, but you also begin to build your brand, brand equity, and recognition. And the more the people can recognize your name and brand, the less effort you have to make to attract individual customers. Customer acquisition cost is simply the cost you have to acquire your customer. It is computed by adding up your marketing and sales budgets for a particular period of time and then divide this total by the number of customers you land during that time frame. But to be truly useful we must compare it to the average lifetime value of our customers. So compare how much it costs us to get a customer with how much much we actual make from the customer. The correlation of these two metrics defines if we actually make money. So you have to shift your definition of success away from direct revenue and into other rubrics. Brand equity and direct conversion, which can, if calculated correctly, be assigned dollar values have their place here. And to break it down another level there are a lot of tangible metrics you can use. Here are a few examples:


Follower can indicate credibility and brand recognition. A brand with 100,00 followers is generally considered more trustworthy than a brand with 700 followers. Followers are a position of the brand equity.

 Social Shares

Social Shares give you the ability to understand what your customers respond to. With a share, someone is actually willing to pass on something you have created.

Applause (+1s, Likes, Favorites)

Applause is something like the preliminary stage (precursor) to a social share. Applause means you have the followers´ attention and it also changes how your posts show up on Facebook.

These metrics form your stated goal of recognition and equity and can easily be measured by a Social Media Monitoring Tool.

So all in all:

To measure relationships on Social Media we use engagement, especially positive engagement as our main Key Performance Indicator. But this KPI is connected to different kinds of Metrics and the problem is, that we instinctively assume that the most tangible is the most effective. But in times of Social Media this is not always true. Tangible helps us predict a good ROI, but brand loyalty, relationships, and other intangible key foundations of community are almost incalculably invaluable. Unbenannt

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