Social Media ROI - a financially sound method
Now guess on “Marketing ROI method” … You get 1 or 3 depending on the search engine!!! Now enter “Methods for Marketing ROI” (use quotes) it is actually ZERO. Check out Wikipedia — you get forwarded to a marketing effectiveness explanation of marketing activities. Financial ROI = measuring the investment in a given currency and compare it with the corresponding profitability or margin in the same currency. Dollars on both sides of the equation!
Clearly an even “somewhat” acceptable method for calculating marketing ROI doesn't exist. And that is actually OK. Is there a ROI for bookkeeping? No. Is there a ROI for facilities management? No. Is there a ROI on producing business cards or creating a logo? No. Is there a ROI on providing support to our customers? No. All this is financially speaking “Cost of doing business”. This lead me to believe that we are hunting a ghost if we are looking for a Social Media ROI.
But in social media we have a few very powerful mechanisms like customer referrals, customer advocacy, customer content contribution and several other contributing factors which all help a company financially to make substantial improvements, when done right way beyond any of the previous market interaction models.
Without going too deep into all the methods and techniques here is a financially verifiable and mathematical doable ROI calculation for Social Media:
Contribution Margin in currency generated from externally referred customers
over cost in currency for human interaction and other cost to manage and engage in the ecosystem
= Social Media ROI.
With the "SOMA-Formula" for social media ROI we have US$ or "currency" on both sides of the equation. And guess what we have benefits from the investment for both: the business AND the customer community. Of course this is only possible if you know your ecosystem and if you did your “customer mapping” as we call it, but with the tools we have today this is easily possible.
Unlike traditional marketing and PR, Social Media actually provides a way to calculate an ROI, that can be taken into the books by a CFO.
Thanks to all the students of the Social Media Academy who contributed to formulate this model - hence "SOMA-Formula".
Let us know what you think, if it helps, what else you may add to this. Do all of us a favor - run it by your CFO for feedback.