Having indulged in the world of social media for several years now, it is quite astonishing how I managed to avoid answering the question: “What is the return of investment on social media?”

This question was raised at a social media seminar we held recently . It’s a logical question because in this digital age, everything can be measured, right? Well, no. We know that social media helps to support public relations. But how do you measure the value of a good press release? This can indeed be done, but there is no meaningful scientific way to do so. But why not? Time to take a closer look at social media’s potential return of investment.

The first insight: Social media and return on investment are very different things. One is a communication instrument and the other a financial measurement instrument. Of course companies need to know the value their social media activities will eventually have for their businesses, and whether their newly founded social media departments are worth the money invested. But measuring social media’s return on investment is a very complex and long-term equation. 1. It should start with defining an actual baseline, which is used as a comparison before and after social media activities. 2. Next, it should go on to measure social media reach, as well as frequencies of interaction. 3. The final step – determining the value of the financial return – is very hard to pin down. How do you find out how many of your actual customers use your social networking sites? Calculating this value is a science in itself, for which there are currently very diverse formulas of dubious merit, in my view.

So let’s start with a different approach. Let’s resist the urge to put a number on social media efforts. Above all, it’s a communication and customer relationship management tool. “How do you measure the value of someone wearing a t-shirt with your name on it?” Asks Dennis Yu, someone who has put a lot of thought into how to meaningfully measure the value of social media impacts. It is almost impossible, because you do not know who he might meet and thus influence. And that is exactly the problem – social media does not generate sales directly, what it does is enhance relationships with your customers, displaying your brand and business in a more human way and thus extending your customers’ mental brand equity.

What makes measuring all the more complex is the fact that social media networks like Facebook are recruiting your customers to do the marketing for you. Success is virtually pre-programmed, for who wouldn’t rather listen to a friend than to impersonal advertising? In times when almost all media channels so over-saturated with advertising and marketing messages that people tune out, social media takes us back to good old word-of mouth marketing. It worked for centuries and it certainly does now – even if deciphering that success into numbers that mean anything is rather difficult.

Consider, too, the information advantages that social media gives your company: you get to know what your customers are talking about, what they don’t like and do like about you, your products or your brand.
Ultimately, social media is what it is – communication from you to your customers. It might not directly drive people to the stores to buy your products, but it paves the way for those beloved loyal customers who, in the long run, are much more beneficial than potential one-time buyers.

Now, if you are still unconvinced and still want to attempt to measure the effects of social media, be aware that do it thoroughly will require setting up an extensive monitoring and measuring system. And before talking about a return on investment, you will have to designate time and resources to design not only social media presences, but the baseline situation you are starting from.

For more information please contact: Susanne Lehr, social media strategist. Susanne@mediawise.local