Tuesday, March 22, 2011

Measure of ROI on Social Media

There’s been a lot of buzz lately about “Social Media” through sites like Twitter, Facebook, Digg, Yelp, Linkedin, etc, etc. Busineses know they need to embrace the craze but how do they justify the cost of hiring a company to outsource their on-line strategy?

In the past, traditional options like an advertising agency were used. They had their place in time, just like the typewriter. Ad agencies were great for the task but technology has passed that concept by. Print media, radio media, and TV media are expensive these days, limiting the number of companies utilizing those old school methods to the big boys. Just think about it…a 30 second ad at the Superbowl this year cost a whopping $3 million! Wow!

Today’s information age has opened the door to opportunity by utilizing the internet and taking advantage of today’s growing social media craze. Businesses have the opportunity to cast their brand over a vast viewer market in seconds, if their campaigns are managed correctly.

Problem is many businesses don’t know how to measure the return on their social media investment. My view on that is simple. Ask yourself how much is an interested customer worth to your business? Basically, this is your average gross revenues derived from 1 sale multiplied by your “close” ratio.

In other words, if your company sells widgets, and the price of a widget is $1,000, then the value of an interested prospect is $1,000 ÷ the number of prospects required to make 1 sale. If it takes you five prospects to close one sale, ROI is $200. ($1,000/5 prospects = $200).

Now that we have the formula on the table, let’s apply it to real life business. If you open a Facebook account for your business and obtain 100 "likes" of the business in the first month, based on our previous formula, the ROI on your first month's effort would be $20,000!

Of course, from this the production cost of the widget, and the cost of your sales staff's efforts must be deducted, still leaving a hefty profit!

Let’s work through the numbers …..100 “Likes” means 100 interested prospects. If it takes 5 prospects to get 1 sale, the 100 “likes” should equal 20 sales. 20 sales x the average value of a sale ($1,000) equals $20,000!

This formula works equally well across Twitter, Yelp, Digg, etc. So it’s pretty simple to see the ROI available by simply putting some effort into building a social media presence. The companies that do will flourish; those that do not will go the way of yesterday’s typewriter……

To learn more on how to take advantage of the programs available to help develop your social media presence, please contact me at dave@socialstrategy1.com or on Twitter @davehanron.

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