Social Media ROI – Part 3

From Social Media ROI – Part 1 and Social Media ROI – Part 2, we saw different ways of calculating the Social Media ROI.  In the third part, I am introducing a down-loadable Excel spread sheet (link at the bottom of this post) for calculating the Social Media ROI.  The spread sheet is based on the following:

1. Work that Charlene Li and Jeremiah Owyang of Forrester Research did in 2007 on the ROI of blogging.
2. Work that Bill Johnston of Forum One has done for Online Community ROI.
3. The remaining work is based on un-sourced research.

General comments

For this research, we identified 13 parameters that play a role in determining the ROI of Social Media.  It is not necessary to include all parameters in a ROI calculation – pick the parameters that make sense.

The general idea is that for each parameter and calculation, we need to determine the offline cost.  Then, comparing the offline cost with the estimated cost of gaining the same results (increased revenue, decreased cost, more customers etc) using online Social Media, we can determine the ROI (re-read post Social Media ROI – Part 2 for more info).  Note that this spread sheet does not estimate the offline cost. If you, the reader, know these values, I will be happy to add them into the spreadsheet as additional calculations.

A few notes about the Social Media ROI spread sheet

1. First, the walk-through is long so you might want to download the spread sheet first (the link is at the bottom of this post).
2. The spread has two sections, a data input section (for entering data) and a results section (for viewing the results).
3. Field colors
   1. Yellow fields are for input.  The spread sheet is already filled with example data.  As you work through the calculations, just erase the example data and add your own data.
   2. Blue fields are calculated output fields used in the results section
   3. Green fields are used both for input (like a yellow field) and in the results section (like a blue field). We use green fields where we enter a number that will be used in the results section but there are no additional calculations based on the entered number.
   4. White – a calculated field not used in the summary.
4. The spread sheet calculates all number on a monthly basis.

So, let’s walk through the spread sheet

1. Traffic (unique visitors) - the spread sheet allows for more than one market.
   1. You enter the total population of your market(s) and the % of that market you believe will register on your site.  Then you enter the % of the registered users that will become active users (users that log in at least once a month).   The active user base is normally about 25% of the registered user base.
   2. You now arrive at your total number of active users on the site.
   3. Now, estimate the cost of advertising to the same number of users in a similar content channel, on a monthly basis, and you have your ROI.
2. Traffic (page views) - also used for ad revenue calculations below.
   1. Estimate the number of visits per active user per month, then estimate the number of page views per visit, and you arrive at number of page views per month.
   2. Use this number to estimate your brand visibility and cost for advertising in similar channels on a monthly basis.
3. Ad revenue
   1. Take monthly page views from above, estimate % of monetized pages, and average CPM revenue, and you arrive at your monthly ad revenue (don’t forget to divide the page view with 1,000 because CPM is cost per thousand impressions).
   2. Note, in the spread sheet example, the ad revenue is not great.  However, it is important for the ROI calculations to include that the Social Media can increase your revenue if you include ad revenue.  On sites with more traffic and more homogeneous user base etc., the ad revenue becomes very healthy.
4. Demographic data
   1. Each registered user is asked to add demographic data in a member profile.  Based on this data, you can target your audience differently.
   2. Estimate the cost of gathering the same demographic data offline and you get your ROI.
5. Search engine positioning
   1. This is a bit tougher – estimate a percentage of search results that will land on the first page of a search query driven by the social network.
   2. Now, estimate the cost of search engine optimization, AND the cost of paid search for getting the same search results.  As you see, in this case we are not comparing to offline costs, instead we are comparing two different types of online costs; one driven directly by better keyword search and higher page rank (based on users linking to your site), and the other driven by paid SEO and paid search.
6. Member value – ‘recommenders’ and ‘approvers’ user profiles.
   1. All users are not created equal.  By company guidelines, some employees are only allowed to recommend a product purchase (eg workers, manager, directors), while other employees are allowed to approve product purchases (directors, VP-level and C-level).  We call those ‘recommenders’ and ‘approvers’.
   2. In this case, enter a percentage of your user base that you estimate are allowed to recommend a purchase.  The remaining number will be automatically calculated.
   3. Estimate the cost of getting these numbers offline, and you get your ROI.
   4. Note that the user base can be broken down much further than only two sections.  You also might want to break down each market in different types of user profiles.
7. Responsiveness to ads – based on a study by Media6, a consumer who is connected with a customer of the firm (“network neighbor”), is 2 – 30X more responsive to ads.
   1. Estimate the number of active users that are also a current customer of your firm.  Then estimate the number of network neighbor that are non-customers (ensure you are not double counting) – I estimated 1.2, meaning that out of all connections (friends) that one current customer has, 20% are non-customers.  I estimated a multiple of 5, meaning that a network neighbor is 5 times more likely to be response to an ad.
   2. The number you arrive at; I call “units of responsiveness.”  The higher the number, the more responsive users are to purchase.
   3. Now, estimate finding the same number of units of responsiveness using off line channels, and you have your ROI.
8. Trade media mentions
   1. Estimate the number of times the trade media will mention the product or company per month because of your social network.
   2. Estimate the cost of advertising in similar channels and you have your ROI.
9. User mentions – Word of Mouth marketing
   1. Estimate the % of active users who will mention the product or company, per month, on average once (on average only one time) to someone who is not yet a customer.
   2. Based on the resulting number, estimate the cost of hiring a buzz agent that can generate similar result, and your have the ROI.
10. User insights – unsolicited comments
    1. Again, users are not created equal. In this case, we break down users by the amount of content a user generates (UGC), and we do that by the 90-10-1 rule.
       1. Consumers of data (90% of active users) generate no content.
       2. Enrichers of data (10% of active users) enrich other user’s content.
       3. Creators of data (1% of active users) create own content.
       4. Yes, it does not add up to 100%, and also different social networks have different numbers.  Other organizations define more user types, for instance Forrester define 6 user types.
       5. It really does not matter how you define it, as long as there is some distinction between users with respect to UGC.
    2. Then enter the number of insights you think an enricher and a creator generates a month.  Note that you are not entering the number of contents that they generate, instead we are looking for the number of real and valuable insights.
    3. You now have an estimated number of insights generated by the community on a monthly basis.  Estimate what an offline focus group would cost, per month, to generate the same type of insights (Charlene Li estimates $15,000/month or $180,000/year).
11. User insight – solicited comments
    1. Using the social network, we can generate polls and surveys to an engaged user community.
    2. Specify the number of polls and surveys per month, average number of questions, and the % of active user taking the poll, and also the % of answers that you estimate will give you beneficial insight.  The result is the number of insights you will gain based on requested feedback from the user community.
    3. The number of insights can again (as with unsolicited comments) be used as a base for estimating the offline cost of using focus groups.
12. Increased sales efficiency
    1. This is a tough one again. Compare the cost of selling to the same user group outside of the social network to selling to the same community inside the social network, and you should see increased sales efficiencies selling to the social network user group (see the above point about “responsiveness to ads”).
    2. Enter an estimated increase in sales efficiency.  Based on current sales, use this percentage as a guide to calculate the total amount saved.
13. Reduced impact from negative UGC
    1. By monitoring the social network, you will quicker find disgruntled users.  Even if the negative UGC does not start on your social network, eventually your users will start chatting about it and you will quicker pick up on it, and can therefore quicker answer it and hopefully diffuse it.
    2. How do you quantify the reduced impact of negative UGC?  Estimate a percentage that seems reasonable – it is a tough one again.
    3. Estimate the offline cost of reducing impact with the estimated number using the social network, and you should have your ROI.

Download the Social Media ROI Spreadsheet.

Two things before you download

1. If you use the Social Media ROI spread sheet, please link back to this blog post and mention my name.
2. If you change the Social Media ROI spread sheet, please email me the changed spread sheet together with a note describing the changes (my email address is in the right nav bar).
   

Social Search

Social Search is a concept that keeps popping up but there does not seem to be a common understanding of what exactly it is. This post will attempt to lay out a definition and then follow up why social search is useful as an online/offline complement to non-social searches like offline library searches or online web searches.

What is Social Search?
Social Search is the interaction with other people in order to retrieve search results. For instance, “Honey, where are the car keys?” is a Social Search. Likewise, a question posted to a social network is a Social Search. However, a catalog search in a library or using an online search engine are not Social Searches.

For a stricter definition, go to Wikipedia. Also, read an interview with Google’s Marissa Mayer in VentureBeat for Google’s definition on Social Search.

Probably the most detailed description is Brynn Evans and Ed Chi’s paper “Towards a model of understanding Social Search”. In order to better their understanding of Social Search, the authors performed a study in Social Search techniques on 150 users. The outcome of the study shows there are three Social Search phases; before search, during search and after search where each phase is subsequently divided further in to categories of searches. It is a good read and the paper includes a great Social Search diagram.

How is Social Search used today?

We are using Social Search in our day-to-day life – every time we ask a question of one or more humans, we perform a Social Search and when we search for things like online restaurant recommendations in repositories of social data.

These are all Social Searches and they are grouped into three types

1. Direct asking – you post a question directly, online and offline, to another human being (see car key example above).
2. Public asking – you pose a question to your Twitter followers.
3. Searching – you search online and offline sites containing question/answer type data; online sources like Yahoo Answers or Aardvark (see below for more info) and offline sources like Ms. Manners and Dear Abbey (two great examples!)

Brynn Evans, this time with Sanjay Kairam and Peter Pirolli better defines these terms in their paper “Exploring the Cognitive Consequences of Social Search”. In fact, they interestingly show that using all three social search techniques normally yields higher quality results than each one individually or two out of three techniques.

How will Social Search be used in the future?

The big search engines are always trying to find better ways at providing high-quality data. Currently, for most searches, Social Search does not function better than a Google, Yahoo or an MSN. For an insightful perspective, look at Brynn Evans post “Why Social Search wont topple Google anytime soon”.

Mike Arrington has a great posting in TechCrunch about Aardvark. Aardvark was built by ex-Googlers and is currently in invitation-only beta. The idea is that you launch a question via IM to Aardvark. Through Aardvark’s network of signed-up humans, at least one human will know the answer and get back to you. The response time is not real-time like a Google search but still fairly short (< 2 – 10min). Nevertheless, the idea behind Aardvark is that the quality of the search result is better.

Why is Social Search important?

This is not about comparing Social Search and non-Social Search. Both searches are important and they complement each other. The important thing to remember is not which technology or which algorithm or process one uses, the important thing is that we get the best results in the shortest and cheapest amount of time possible.

Two quick examples – use Social Search when you have questions not easily understood by search engines like “Where in San Francisco is the best place to buy a pair of running shoes?” Use search engines with questions like “Where is nearest coffee shop”.

From an anthropological perspective, the understanding of how we act and interact helps us in our understanding of who we are and also how Social Search can be leveraged and for what causes in political, environment and other social movements.

From a business perspective, in any type of marketing promotions, a good understanding of human actions and interactions is key.

As a sidebar and even though it has nothing to do with Social Search, check out David Weinberger book “Everything is Miscellaneous” on David’s take on search. It is an interesting study about search and how it has been performed throughout history and where search will lead us.

Comments are a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Consumer Predictive Behaviors

In the summer of 2008, I created a slide deck about consumer predictive behavior for our online news and social network site.

As an internal deck, it is not beautified but it helped channel our thinking. Nevertheless, the deck tells a good story about consumer predictive behaviors and I would like to share it with the community.

There is an ongoing discussion about Social Media ROI (see my previous two posts about Social Media ROI) and an even larger discussion about overall ROI covering both offline and online events.

The idea is that today’s analytical tools only count the last step before a conversion and the actual conversion. This is good but it misses a lot of really important information. What did the consumer do before the last step? What online/offline advertising impressions pushed the consumer to the last step? What online/offline conversations did the consumer join? And so on.

The consumer might have spent time talking to a sales rep in a store, seen an ad in the paper, saw another ad on the TV, browsed the web in the library (unless the consumer logged in, we cannot track him on a public computer) and saw an impression, talked to a friend online, talked to another friend offline, and finally clicked on a banner ad that pushed him over the threshold to be converted into a buyer.

Here is the deck on Predictive Behaviors

Specifically for large purchases, there is always a chain of events that brings a conversion. The deck tells a good short story.

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Social Media ROI – Part 2

From the last post, we saw that some folks argue that Social Media ROI can NOT be calculated and some folks argue that Social Media ROI can be calculated. We argue that Social Media ROI can be calculated and we will put forth a few different ways of calculating the Social Media ROI.

First up is Forrester’s Social Media duo Charlene Li and Jeremiah Owyang. In 2007, Charlene and her team conducted a study on the ROI of blogging where they saw that it is fairly easy to calculate the ROI of blogging. They did not calculate the ROI of blogging directly. Instead, they calculated the value and the cost of key functions like advertisting, PR and word of mouth marketing of traditional media. They then transposed the value metrics to the blogging calculations and compared the cost between traditional media and social media based on the same values. The value and the cost of traditional media is well known so based on the same value but difference in cost, the ROI of blogging can easily be determined.

Charlene quotes an example: “FastLane has about 100 people commenting on the blog each month, which is equivalent to gaining customer insight on products and brands from a traditional focus group. We estimated that the value of this was equivalent to running a focus group every month at the cost of $15,000 a month, or $180,000 a year. Voila – there’s the value of the blogging benefit laid out in black and white.”

This method can be extended to the ROI of Social Media with similar results.

For better visualizion of the study, refer to Shwen Gwee’s slide deck called “Can Pharma Make a Business Case for Social Media.” The study slides start at slide 60.

So one way of measuring the Social Media ROI is by comparing the value and the cost of key metrics from traditional media with similar key metric from Social Media.

Another way of calculating the ROI is doing what Powered, a social marketing company, did. They asked the customer!

Powered is a social marketing company that builds managed online communities for their clients. The clients invite their customers in to the online communities for building stronger B2C relationships. The managed online communities “provide the benefits of social networking with engagement marketing, which result in a high conversion to product purchase, greater affinity for the brand and key insights into consumer behaviors.”

A research company, New Century Media (NCM) conducted a study of Powered’s social marketing programs. NCM asked customers questions in regards to purchase intent, brand affinity and brand loyalty, and then compared the results direct marketing and mass marketing.

Based on the NCM’s study, the Social Media ROI using Powered’s techniques where 60:1. This compares very favorable to direct marketing at 11:1 and mass marketing at 2:1 (download the report for Social Media ROI details and references – it is a great read).

The last comment is from Bill Johnston at Forum One. Bill has compiled a set of publicly available data that are related to Social Media ROI:

1. Community users remain customers 50% longer than non-community users. (AT&T, 2002)
2. Community users spend 54% more than non-community users (EBay, 2006)
3. Community users visit nine times more often than non-community users (McKinsey, 2000).
4. Community users have four times as many page views as non-community users (McKinsey, 2000).
5. 56% percent of online community members log in once a day or more (Annenberg, 2007)

We have discussed a few ways of calculating the Social Media ROI; Charlene and Jeremiah compares value and cost of key metrics between traditional media and social media, while NCM simply asks the consumer and then compares the ROI with direct and mass marketing. Both cases lead to big advantages to social media over traditional media – and that does not include other online social media advantages like detailed measurements.

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Social Media ROI – Part 1

There is an ongoing discussion whether Return on Investment (ROI) should be used on Social Media. One camp argues that the primary reason ROI should not be part of Social Media is because the development of Social Media is so recent that the key performance indicators (KPI) used to calculate the ROI have not yet been defined. Moreover, this camp also argues that there is no reason to slow down the work on Social Media due to lack of ROI metrics. The metrics will be found at some point.

The other camp argues that even though social media is a recent phenomenon, the fundamental businesses principles still apply – when you invest, you expect a return. The idea that something is so recent, so new, so different that you cannot calculate the ROI is simply hogwash, the argument goes, while pointing the finger back to the Internet bubble of 1990’s.

These postings will try to open up and clarify the discussion. We’ll discuss that there are different types of ROIs used for different purposes, and that there are a different ways of calculating an ROI based on different sets of metrics, and we will follow up with a conclusion.

In a marketing campaign, you expect your return to be higher than the amount you invested within a pre-determined time frame. This type of ROI is used when you are trying to make more money.

On the other side, you also use the ROI calculation when you are trying trying to lower costs. For instance, in product support, you use an ROI calculation to see the estimated savings on a new product or procedure. Even though you are not making money, you are still lowering your support costs, with other words, you might still have a positive ROI.

In addition, when calculating the ROI of social media, you need to include risks. Until FDA releases guidelines on a pharmaceutical company’s responsibility with respect to adverse event and off-label promotions on a company-sponsored social network or community forum, the pharmaceutical industry, in general a very risk-adverse vertical, will be resisting using Social Media.

As there are different ways of calculating the ROI, there are also different types of social media marketing campaigns, short term, long term and always ongoing, and there are also non-marketing campaigns like the above example of product support.

Next posting will talk about ways of calculating the Social Media ROI. Links will be posted to Jeremiah Owyang and Charlene Li of Forrester Research, Bill Johnston of Forum One Communications, and Lithium Technologies and Powered Social Marketing.

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Business benefits of Social Media

As we saw in a previous post, there were 80 million users of social networks in 2008, forecasted to increase to 115 million in four years. In addition, according to Media6degrees, a consumer who is connected to a customer is 2 to 30 times more responsive to promotions. These numbers alone should establish the benefits to a business. You need to be where your customers are.

Social Media is about relationships, about people talking to each other. Using Word of Mouth (WOM) marketing, you promote your brand by getting people to talk about your brand. The more people talk to each other, the further your brand will travel.

Joining conversations with your customers builds trust relationships and customer loyalty. Using honesty and respect, bidirectional non-marketing speak and a willingness to teach and learn on an equal basis is important because customers buy from the businesses they trust.

In addition to forming trust relationships with your customers, involving them directly in product development benefits innovation cycles. A community of a thousand passionate customers often generate out-of-the-box amazing ideas, which narrows the focus and speeds product development, (“wisdom of crowds”). The advantage of listening covers all areas of a business including product development, marketing and support. Customers have great ideas and you would be crazy not to listen.

Using Social Media, you send a strong message that you are a hot, cutting edge, forward leaning company, on the forefront of a social movement. You are willing to take risks. Depending on your market vertical and your products and services, this benefit might be more or less important to you.

An active social networking community help raise your search rank based on incoming links. This is important for driving new traffic to your web site.

The bottom line is that businesses today need to be part of the social media movement. This might be done in small doses like creating a company group and employee profiles on LinkedIn. Or, it might involve establishing large social network communities on all major social networks, employee blogs and customer forums. The important take-away is that if you are not Social today, you need to be Social tomorrow.

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Social Media – Social Movement – Marketing Potential

There were 190 million adults online in the USA in 2008. Out of those, 80 million spent on average 14 hours a week in online social networks.

There were 11 million social network users in 2005, expected to grow to 115 million in 2013.

For businesses and social media marketers, this is a massive pool of consumers that appeared almost overnight. One can argue that this is a once-in-a-lifetime event.

Where did they come from and how are they growing – looking at the graph, the growth is coming primarily coming from the left with kids getting older and from the bottom where the older (35+) generations have began to use Social Networking.

An important thing to note about the younger generation is that they no longer want to use email. “I use email with my parents, with my teachers and with my employers. When I talk to my friends, I use Social Networking.” For a business, that means that if you market to younger generations, you need to be on Social Networks because that is where your customers are.

Well, 80 million social network users at 14 hours a week is more than 1.1 billion social networking hours per week… so what are they doing there?

• 90% keep up with friends
• 57% making plans with friends
• 50% making new friends
• 43% organizing new events

Bottom line is that Social Networking is a social movement – and as a businesses and an individual, you need to engage, join and participate.

Numbers are from Harris Interactive (Dec, 2008), eMarketer (Feb, 2009) and Pew Research (Jan, 2009).

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.

Social is human-to-human

Social Media is about relationships.

For a business, using social media means building deeper and more trusting relationships with customer.

All social media is not created equal nor for the same purpose. Users use Social Sharing sites to seed articles they feel are important to the rest of the community; digg.com, reddit.com, newvine.com and also social bookmarking sites like del.icio.us and stumbleupon.com fall in this category.

Social Publishing sites are used to upload User Generated Content (UGC) by users to display their photos, video, knowledge and more. Examples are Flickr, youTube, microblogging site Twitter, Wikipedia and also all blogs.

Social Networking sites are normally what we think of when we hear about Social Media. MySpace and Facebook are the big social networking sites. MySpace are more directed to the artist and musician while Facebook are built as a life style social network. In addition to the big Social Networks, there are many more smaller social networks. Ning, a site that provides tools for building, manageing and hosting social networks hosts over 500,000 social networks – a new social network is being built every 30 seconds.

Building relationships with customers takes time, effort and money.

A business needs to ask what the return on invesment is for a social media marketing campaign. This is a tough question that has been answered a few different ways.

We will try, in a later post, to address the Social Media ROI.

Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.