Another way to measure social media success

Social media fight

via KellBailey

By {grow} Community Member Eric Pratum.

I work in marketing analytics. there is nothing more fun than having a knock-down, drag-out fight over the value of a tweet, a follower, or a like. If you have the right tracking set up, I can tell you, but whether or not I can tell you isn’t that important to most businesses. The cost of getting an accurate measurement is.

But I think there are many, many creative uses of social media — and even more creative ways to measure it — that many people miss. Let’s look at that today.

Another way to measure social media

I’d like to offer a different way to look at the value created by deploying social media for an organization. What if it’s more valuable for some businesses to look at the money they save versus the money they make as a result of social media use?

Let’s imagine you run a popular coffee shop. There’s always a line, so your problem isn’t whether or not people are interested in purchasing from you. It’s throughput – how many people you can get through the cash register every hour. Your average sale takes 45 seconds and is worth $5, but you notice that 10% of your customers all have the same basic questions, and asking and answering those questions adds 15 seconds to every sale and does not increase the sale price.

Calculating social media ROI

When no questions are asked, you make 80 sales per hour and take in $400 per cash register. If just 10% of your customers ask a question when they order, you make 75 sales per hour and take in $375. That’s a 6% decrease in sales. The opportunity cost of answering those questions is $25, or the cost of 1 or 2 hourly employees — per hour, per cash register.

What if you could use social media to answer nine out of 10 of the questions asked at the cash register so that customers are prepared and don’t take up that extra 15 seconds?

I’ve actually had clients in this situation. “What’s today’s special?” Tweeted it, Facebooked it, put it up on the big chalk board at the door and above the register. “How many shots are in a grande?” We worked that into updates at least once every week. “Do you have soy?” Yes, indeedy, and our tweeted, instagrammed, and Facebooked photos make that clear. For the cost of one employee hour every day spent on social media, we increased sales per cash register almost $50 per hour.

When you’re open 12 hours per day, 7 days per week, 360 days per year, that’s additional income of $216,000 per cash register per year.

Another type of social media savings

Let’s imagine you have a call center for your kitchen appliance business. If you knew that 10% of your callers looked for an answer online before calling in, would it be worth updating your FAQ, going to forums/blogs/Twitter search/blog posts/etc, and try to answer their questions? You could cut your call center staff and put those savings toward product development, marketing, sales, profits, or who knows what else or you could just cut your wait times and make your callers that much happier.

I had a client that did this and saved hundreds of thousands of dollars every month.

Calculating the value of your social media activity

Now, should you spend your time calculating the value of a like? It’s up to you. Either way, social media has made a lot of people money in many measurable ways, and if you’re not measuring at least some of your social media in terms of dollars spent, saved, or acquired, you’re missing out on a major opportunity.

What say you? Do you measure your social media ROI?

eric pratumEric Pratum runs Inbound and Agile, a marketing research and analytics consultancy/

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  • Love the approach Eric. An interesting take.., have to remember this one.

  • Ikohaus

    This is truly a valuable lesson as to how to use Social Media as a communications tool for F.A.Q.s

  • Thank you very much, Rogier.

  • Thank you very much.

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  • Excellent nuts & bolts approach to understanding what could be the difference between a profitable or not profitable (small) business ~ of course this approach only high lights far larger margins in a big company.

    Years ago I was helping a small cafe and the owner came to me one day and said” if we can slice the tomato on the sandwich at an eighth of an inch rather than quarter of an inch we can make a profit on our sandwich.” Funny example but it’s the mindset that counts. It takes 30 seconds to answer a question and not do what you do, multiply this by your number of customers per hour/day/week/month/year and …..and you get the picture.

    I will use this example to reinforce “why social media” . Thanks Eric for this grass roots analytics approach!

  • Thank you very much.

    Your example reminds me of the quote (I think from Peter Drucker), “What gets measured gets managed,” and also the idea that Christopher Anderson espouses in Free, which is that some costs eventually become so low as to essentially be zero. For example, the cost of sending one bit from your computer to mine, but at the same time, if we look at that in the aggregate like in your example, these things can really add up and become meaningful to the business. One tomato sliced in quarter or eighth inch slices has almost no effect on the business, but a year’s worth of tomatoes adds up.

    Thanks again!

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  • Big companies will always insist on measuring, and spend the $ to do so …

    For the small business, it looks like this: I pick one restaurant over another to meet friends (check Yelp review), hire a roofer (ask for facebook recommendation), send XMAS gift to Boston clients (via a Twitter connection who runs a Boston gift basket business) … all very real sales, all this week, never to be measured ….

  • Good reminder Eric. The ROI of technology, especially software, has long been measured in savings versus revenue. Well, at least, that used to be true. We seem to have forgotten that as social media has hit the mainstream. Perhaps many feel savings isn’t as powerful an argument at revenue, but then there’s a lot to be said for margins.

  • Thanks, Frank. I totally agree. It’s very lowest-common-denominator to go for direct revenue, but looking at the effects that leads to eventual revenue changes takes a little bigger picture view.

    Btw, nice to see a fellow SCUBA & skydiver around here 🙂

  • jennwhinnem

    Hi Eric – I like posts like this that have me think about something differently. I have to say though, it was chilling to be reminded how customer service doesn’t pay (if I take the time to answer your question, I lose a sale). Considering how most people are running around advocating obsequious service, and saying THAT’S cost effective, you would seem to be advocating for removing as much of that as possible from the sales process and putting it somewhere else. Marcus Sheridan (the Sales Lion) has a similar take. He learned through Google Analytics that the people who consumed x number of pages on his site were so many times more likely to buy, and their consumption of online information eliminated a lot of q-and-a during the sales process. I think he said something like “the time you take educating a potential customer is time you’re not closing.” I think as a business owner, I’d agree. As a customer, I’m a little grossed out to think that I’m giving you money, but you want to get rid of me as soon as possible. I suppose I should just suck it up, eh?

  • Hey, Jenn. That’s a good counterpoint, and I think it’s a slippery slope that is steeper for some businesses, shallower for others.

    If you asked most car buyers if they’d like to be able to find their own information online, in social media, on informational signs on cars in lots, etc before being annoyed by a salesperson, they’d say definitely. If you relied so much on that though that you cut back on salespeople, you’d probably find that people didn’t want to buy cars from your lot because they could never find someone to answer their questions. In cases like this, it doesn’t hurt to put your product info out there for people to educate themselves (and hopefully drive down your sales costs, drive up your throughput, etc), but that will probably only help so much.

    On the other hand, a business that sells a simple product like Hot Dog on a Stick (odd example that just came to mind) can reasonably rely on cutting down questions – without actively trying to force customers not to talk of course – because their product doesn’t need a lot of q&a, and while they can generate awareness and new business through great customer service and customer experience, they just have to weigh the value produced by more time/money spent on CS vs less.

  • Eric, this is terrific insight. And it shows how the use of social media is not just for marketing, advertising and PR. In fact, in many ways the investment needed for these unpredicatble “selling” functions can actually be covered by the basic fundamentals you’ve identified. So often with new technologies, people forget the fundamentals.

  • Cheers, Eric. SCUBA is my solace and skydiving is a mental reboot. They keep me sane!

  • Thanks for the great perspectives, Eric. Every bit of clarity helps.

  • Anthony McLean

    Nice post Eric. I think all things in moderation is the key. Answer the questions that need to be answered and provide the answers for those who search them out via social media. Ultimately thought if you do either poorly your reputation will suffer both on and offline. What about a register that is dedicated to new customers (i.e. who will ask more questions but the proprietor accepts slower trade on that register to create a new loyal customer) and a more progressive line for the experienced. Or a FAQ terminal as you walk in to get your questions answered but engaging and empowering you to make your purchase. As you say below though, if you sell a Hot Dog on Stick you really need to assess what your business is all about and split testing may deliver some interesting insights. Cheers

  • Thanks, Anthony. Interesting ideas.

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  • Thanks, Rob. Much appreciated.

  • Thanks, Steve. Totally agreed.

  • Social media is definitely a term thrown around too often without any practical basis. This brings some good perspective into the mix. Very helpful!

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