Infographic: Social Media ROI

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Calculating social media ROI is very important, and very difficult. The value is that you know whether you are getting benefit from your investment, or just wasting time and money. The difficulty is that it is not clear how to determine the "Return" on a social media investment. Social media frequently pays off long after the original investment is made, but like face-to-face networking can be slow to produce visible results.

Addressing this confusion, the Socialcast Blog has a great infographic explaining how to calculate ROI for enterprise social media. Because it focuses on enterprise social media (the systems used to communicate within your company) these ideas do not translate directly to engaging and selling to your prospects, but there are still some valuable lessons:

1. Low initial investment: "With industry costs averaging $3-5 per user per month...even small increases in key performance...produce significant ROI."

For marketing purposes, social media set-up and ongoing maintenance costs can be kept fairly low. There is no (or minimal) cost to use the various tools, and very little specialized training needed. So even a small increase in sales, spec rate, or customer loyalty quickly justifies the investment.

2. Increased engagement is valuable: "...companies like Starbucks, Limited Brands, and Best Buy not only greatly value employee engagement as a concept, but also can also accurately quantify an increase in employee engagement in actual dollars.  For example, at Best Buy, a 0.1% increase in employee engagement at the store level is worth a $100,000 increase in annual operating income per store."

The behavior of highly engaged employees is a good model for the behavior of engaged customers. You could do a similar engagement study on users of your webpage, readers of your newsletter, etc. This would let you determine how valuable engaged customers are, and how engaged valuable customers are.

3. Turnover costs you money: "It is estimated that the cost of employee turnover is 100% to 150% of the employee’s base salary."

Similarly, the cost of new sales is higher than the cost of repeat sales. You are more likely to keep highly engaged customers. Furthermore, keeping them in your network and on your subscription list improves the likelihood that an inactive account will return down the road.

4. Improved sales information: "Enterprise social software platforms provide employees with real time business insights, allowing them to react faster to product availability, customer issues, news about the competition, and other insights that help them go first to market with new products."

This is a direct correlation. Your sales team will also benefit from real-time information about customers and competitors, and can respond immediately to customer questions or complaints. This responsiveness is the strongest argument for using social media in sales.

The theory and practice of social media ROI calculation is still evolving. It is likely that, at this early stage, calculations will be imprecise, and miss important factors. Still, it is important to gather the data and develop the habit of analyzing it. As better analysis tools come along, use them to improve your process.