Friday, September 23, 2011

Social Media & A Bad Economy

Today’s economy is definitely going in a downward spiral.  Companies are making personnel moves to cut costs to remain profitable.  After 5+ years of economic downturn, are ongoing layoffs and operating budget cuts still the answer?

In any economic model, the basic principle of “Supply & Demand” can be applied.  Is it a sound financial decision to continue to reduce a company’s payroll and marketing budget (which will reduce the “Demand” side of the equation as fewer new customers are brought into the mix, in turn reducing the “Supply” side of the business which is represented by the company’s products which generate the revenues necessary to run the company) to keep profits and EBITDA (a widely used term by those in finance, “Earnings Before Interest Taxes Depreciation & Amortization) at a targeted level? 

Let’s talk about that for a bit…….

By cutting marketing and advertising budgets, a corporation can certainly give the appearance of maintaining profits at an acceptable level.  But is that decision a wise decision by the company’s executives in the long run.  By cutting marketing, future sales will inevitably be lost….and new sales are the lifeblood of any company’s future.  Many of today’s marketing efforts rely on the use of social media.  While social media may seem “free” to the individual user, the cost for corporate programs can reach as high as $10,000+ per month.  The problem we face is being able to quantify the value of social efforts.  Implementing and maintaining a sound social media program can be extremely labor intensive for large corporations.  In order to justify the budget required to maintain the social media efforts, the program directors have the difficult task of demonstrating the “Return on Investment” or “ROI”. 

Demonstrating ROI on a social media program has been debated over and over recently and there are many opinions on how to do it.  Some companies count “Followers” on their Twitter account, some look at “Friends” on Facebook, others look to reviews on Digg or Yelp as a success.  But how do you turn this into real dollars when trying to present to a Board of Directors looking to slash the budget?

Ultimately, there is no right or wrong answer.  It is individual preference on how to present your case.  I’ve always kept track of prospective customers generated by my social media efforts and could easily track the closed sales resulting from them.  But I’m only one person.  When we talk corporate level social media with hundreds of people working on it, the reach of ROI becomes exponentially larger and more difficult to demonstrate. 

If you have had success representing ROI from your social media program or have any ideas or thoughts on how to do so, I’d be interested in hearing them and helping everyone learn from your experience.

Note about the Author:  Dave Hanron has more than 20 years proven experience in corporate sales and marketing and possesses a bachelors degree in Economics from the University of Rhode Island

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