How to Measure the ROI of Your Social Media Efforts – Part I

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Many people suggest that social media is not measurable – we’d beg to differ. The old saying, “you can’t manage what you can’t measure” has never been more true than in social media.  To demonstrate social media return on investment (ROI), you must first determine what goals you want social media to help you achieve, and set measurements that track your progress toward your goals.

Measuring Social Media ROI for Retail (or Business-to-Consumer Sales)

Head of Marketing for Lane Bryant and creator of the Supergroup network, Jay Dunn has developed an equation that attempts to quantify your network’s value.  Called “Dunn’s Equation,” it is Network Value = Annual Value x Network.

 

To use this calculation, you need to know what the annual value of a new customer means to your bottom line.

Find the ROI in your social media efforts.

For example, let’s say a customer’s annual purchase from you is $500.  Assume that each member of your network has 100 followers, and 5% of those followers have similar interests.

That means your network value is:

Annual Value:  $500

Network:  100 Followers

% with Similar Behaviors:  5% (5 x $500)

Network Value = $500 + (5*$500) = $3,000

That is, $500 for the first customer from your network, and $2,500 for the referral potential from your network because of the viral, word-of-mouth nature of social media.

Jay is quick to admit that this is not highly scientific, but it is an interesting look at what the value of your network is to your business – if you’ve built your network properly.  Notice that the equation assumes that 5% of the people within your customer’s network have similar interests.  If you’ve built your network strategically to attract your target audience (as opposed to focusing on quantity over quality, for instance), then this percentage could well be higher.

As you can see, as you grow your network strategically, your network’s value grows with it.  Focusing on quantity over quality could reduce the percentage of members with similar interests, and will have a negative impact on your network value.

In our next post we’ll address measuring ROI for business-to-business sales – stay tuned!

08.22.2011

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