In our course we already have discussed how social media brings about not so tangible benefits. While not all companies should jump in the bandwagon of social media activity, it is clearly seen in a positive light. Many companies may however be wary of joining in due to the uncertainty of investing in a social media strategy. How much to invest? How to implement the strategy? What more tangible benefits will it bring? How do I know if I am doing so successfully?
Already in our course literature, certain benefits have been quantified. In the study conducted by Luo, Zhang and Duan (2013), results of their research showed that social media metrics such as blog posts and consumer ratings were actually significant predictors of firm equity value. Furthermore, their results showed that social media metrics predicted firm value stronger and faster than more ‘conventional metrics’ such as google searches and web traffic. However, it does not indicate which strategy to select, how much to invest, or how to assess the success of the investment. As the authors state, many managers have jumped in the trend, without a proper strategy, and have therefore ended up with multiple unfinished solutions.
Well, an idea could be to use basic finance metrics. An industry practice to measure the potential worth of an investment is to look at its ROI. Let’s look at the ROI equation:
ROI = (Return – Investment)/Investment
We can from here on define how this equation applies to an investment in social media. The first step is that a company needs to establish their goal for using the social media strategy, how to track it, and assign a monetary value to these specific goals (Lee, 2015). For example, let’s say a company is interested in increasing revenues. In this example their goal is increase online purchases, a way to track it could be through sales tracking with Google analytics, and a way to assign this a monetary value could be by measuring the average purchase sale magnitude in their website and comparing it to the cost of using non-digital marketing tactics.
Further ways in which you could consider ROI of social media investments in more detail could include to measure total benefits per channel, determine the total costs, and analyse how to further improve your ROI results (Patel, 2014).
While social media can bring very valuable benefits to companies, it is important managers carefully consider their investment, rather than jump in the trend. Further methods can be considered, but for a beginning start up, these can be sufficient.
References
Lee, K., 2015. How to Calculate Social Media ROI: A Delightfully Short Guide. [online] Buffer- Social. Available at: <https://blog.bufferapp.com/guide-calculate-social-media-roi> [Accessed 12 Oct. 2016].
Luo, X., Zhang, J. and Duan, W., 2013. Social Media and Firm Equity Value. Information Systems Research, 24(1), pp.146-163.
Patel, N., 2014. How to Calculate the ROI of Your Social Media Campaigns. [Blog] QuickSprout. Available at: <https://www.quicksprout.com/2014/06/27/how-to-calculate-the-roi-of-your-social-media-campaigns/> [Accessed 12 Oct. 2016].
