Elena Shalashnikova
Elena Shalashnikova 19 July 2013

Is it possible to calculate ROI of a social network community?

Having the most modest budgets, online advertisers are now learning to count ROI.

The situation is even harder for SMM. Unlike other sectors of online advertising, SMM provides customers not only with displays, clicks, and sales. Company pages on social networks establish relationships with a certain community of real people who are often selected by target audience parameters. Perhaps this bond is not as strong and controlled as advertisers would like it to be, but it is much more constant than we dared to dream about ten years ago. When a client asks to calculate ROI, SMM-agencies are often not prepared to give him beautiful figures.

Why you should not get into the ROI-trap?

ROI is a financial ratio, net profit divided by the investment, and it is generally considered one of the main criteria for the business success. When a company asks to calculate ROI of an advertising campaign, it looks like a fairly common situation in today’s business: the management is glad to entrust employees to be responsible for the business, but doesn’t want to share neither profit nor power with them. Why is profit gained from the company page on a social network impossible to calculate? Let’s list the reasons.

1.           The cumulative effect of all advertising campaigns. 

Despite the fact that we are able to track how many visitors come to a company website via a link on a social network page, we do not know what kind of advertising channel will bring us sales in the end. A person may be subscribed to the page, be its active reader, but having decided to be a customer of the company, he will go to the site through a search engine or a bookmark in a browser. Or the other way round: for example, he sees an advertisement of the product in every episode of his favorite sitcom, but when ready to buy he will go to the company’s website at convenient way for him in the social network. The traditional “ask-your-customers-where-they-heard-you” variant is rather self-deception than a real method, because people are not only usually unaware of the motives behind their behavior, but are also unmotivated to think about it.  To calculate the return on advertising investments into one channel, you should stop any business promotion for a year to eliminate the delayed effect of old campaigns, and only then summarize and estimate the results. It is also desirable to introduce a control group to exclude the influence of other factors (e.g. weather) on the sales. As a rule, advertisers are not ready for such things.

2.           Advertising is only the first step in a sales process. 

When clients offer me a percentage of purchases made as a result of our work on social networks I do not refuse. I explain what authority I will need to have to get the turnover increased. In fact, if we want to promote sales, we have to diagnose bottlenecks in the sales process and work on them. If you want success, you will often have to change motivations of some of your employees, or tighten control over what is happening at every level of the sales funnel.  A social network page can ensure that your target audience becomes more aware of your brand and the product or even fall in love with them, but it’s beyond its power to improve the company’s logistics.

 3.           SMM is the territory of reciprocity.

Although most large brands have been using the Internet for services as well, their understanding of ​​marketing is still like that of media: it is expected that ads will make think the way the company wants. In case of TV advertising we’ll never know how many people switch over the channel once a bouillon cube commercial is on. At the same time social networks are even able to say what the people who watched the commercial thought. Sometimes a bottleneck in the sales process is the features of the product itself, especially its pricing and positioning. The social network will make it obvious rather quickly, but investments in SMM will be effective only if a decision to change the situation is taken. May be not immediately taken (instant reaction is not typical of large companies), but will bw after all.

4.           The main function of management is the information basis.  

Any financial ratios can be calculated but only if there is the data available. As a rule companies do not have information on their primary and repeat sales: it is either impossible (for example, in the pharmaceutical industry it is unreasonably expensive to track repeat sales) or the way management is organized is an obstacle to it (I know some logistics companies in which sales directors do not have information on the quantity of leads, not to mention their quality and dynamics).


How to calculate SMM efficiency without ROI?

Those who love financial terms and economic meanings are recommended to recall the concept of "alternative costs", which takes into account not only the amount of money spent on social networks, but also the alternatives (where the budget was not spent instead of SMM). The main value of social networks – the bond with the target audience - can be accepted as a bonus. If it turns out that the cost of impressions and links to the brand’s website by alternative tools of Internet advertising is higher than impressions and links from social networks, or compatible with them on price, then the work with social brand communities is commercially viable. Otherwise, it is not.  Of course, an economic effect of the bond with the target audience can be counted but it is quite expensive: a huge data base on the subscriber behavior on the page will be required as well as a serious incentive programme to make the subscribers share this data.
Advertisers very often track the company page efficiency by the user visits to the company website. This idea exists only because company directors are used to considering the visits to the company website as the result of Internet advertising. They are not used to the idea that a social network page is as much a company platform as its website. Moreover if the work on the social page is well-done this platform is more dynamic, informative and attractive to the audience. That is why it makes sense to set the cost of links to the website equal to the links to the social network page. Not all social networks allow to track the number of links to the company page though.

As an example let’s consider the calculation of the efficiency of company Facebook page for a brand of the "beauty and health" industry (three month work, the budget of 70 thousand rubles per month).

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