Some companies are still have trouble understanding the return on investment of a well-run social media campaign. In an effort to take into account short attention spans and a general lack of interest in changing hard and fast attitudes we’ve put together a quick, and easy, piece here to show how social media not only gives a great return on investment, it now surpasses most traditional media.

Traditional ROI is calculated: ROI = (revenue – investment) / Investment * 100.

Or: ROI = (∆ revenue – investment) / Investment * 100. Where, for those of you who have forgotten grade 9 math, ∆ revenue means “change in revenue”.

Ok, so that’s how companies have traditionally determined if the cash they’re shelling out for an ad campaign is worth the effort. Investment takes into account the hours to create the campaign and airtime and anything else that costs them money. They then deduct that from whatever sales they can attribute to that particular campaign.

The 2nd formula is a bit smarter because it’s easier to quantify the campaign’s success if you know what your sales were before you began.

Now that we’ve got that sorted we can move on to social media. While the formula doesn’t change a whole lot there are a bunch of new parameters that can be included to determine the return on investment. Stuff that you don’t get with the traditional model.

Social media ROI can be calculated in a ton of different ways. Check this out:

ROI = (revenue – investment) + targeted engagement (new clients) / investment * 100. How many new leads has the campaign established? You can make a case for traditional campaigns doing this too but since social media is highly targeted you’re more likely to get qualified leads from your social media.

or this one…

ROI = (revenue – investment) + employee retention / investment * 100. Engaged employees are more profitable, productive and less likely to leave their jobs. How much does it cost to train a new employee?

According to the Gallup G12 poll there is a direct correlation between employee and engagement and retention. The same poll correlates employee satisfaction with customer satisfaction and loyalty. The “idiot” explanation of that is; If you’re employees like your company and business practices so will your customers. Duh!

how about this one…

ROI = (revenue – investment) + customer engagement and idea generation / investment * 100.

Take the Old Spice campaign for example. Old Spice saw a 2700% increase in Twitter followers, 800% increase in Facebook fan page visits and 300% increase in traffic to the brand website and countless paradys, but most importantly sales of its Body Wash more than doubled!

Other companies have had similar success when they engage their customers. Engagement builds incredible customer loyalty and brand awareness but also gives users a sense that they’re dealing with a real company, with real values and real people.

and finally, my personal favourite…

ROI = (revenue – investment) + social good / investment * 100. This is my favourite because, for so many years, big business has focused only on their bottom line. Even the companies that have philanthropic endevours built into their business model have had little success in translating that to ROI

If you still don’t get it maybe social media isn’t for you. If the company you work for doesn’t see the value in engaging employees and customers, developing new sales opportunities, reaching target markets and doing some social good then perhaps they should stick with traditional media like TV. After all, no none is using their PVR and skipping all the commercials. Are they?

Written by jax