ROI Fortune Teller

By Rob Petersen, {grow} Community Member

Only 8 percent of companies say they can determine Return on Investment (ROI) from their social media spending (source: Econsultancy).

I teach Measurement and ROI at Rutgers Social Media Marketing Mini-MBA along with Mark Schaefer and others. In my free eBook, 166 Case Studies Prove Social Media Marketing, there are plenty of successful companies that have proven a social media ROI. So why do 92% of companies struggle with this? The answer might surprise you.

Tangible is something that can be measured and intangible defies measurement. ROI is definitely tangible and something every business should be able to measure. It is, after all, a calculation. Here is the one most widely used:

Return (e.g. sales, profit) – Investment/Investment (X 100) = ROI (%)

For example, I go to my boss or my management or my board of directors and say: Give me $100,000 for a particular brand or business, my team and I will put together a strategy, execute and provide reporting. We’ll prove it generates $300,000 in incremental sales for a 200% or 2-to-1 ROI in 12 months.

What comes next is they say: You want me to give you $100,000? Well, if I do, I don’t want to just get that money back in 6 months or 12 months or whenever you tell me it will generate that revenue, I want to be convinced this is going to happen. I want you to prove it to me.

To prove it, the following steps are taken:

  • Define the return by the financial metric most important to the company’s success (e.g. sales, profit, conversion or shareholder value)
  • Account for out of pocket and internal investments (marketing and operations)
  • Determine the length of time (e.g. 12 month or 18 months). It should be done with an understanding of the customer buying cycle and what is the annual customer value.
  • Establish the Base Period against which the effort is to prove the increase

We come back. We review and discuss the numbers. Overall, the measurements stand up; then, the intangibles surface, the reason why companies struggle.

The leap of faith

With every ROI initiative, there is always a leap of faith. Someone is asking someone else to put up money; then, wait for some period of time before they see a return. This means the company, not just the people who put the calculation together, has to be aligned to the common goal and there is trust in people’s ability to deliver.

If you need more proof, here are 23 facts that demonstrate and explain why companies struggle with Return on Investment (ROI).

  1. 90% of CMOs say social data has impacted at least some of their decisions; only 47% use data to make predictions or forecast sales. (source: Bazaarvoice)
  2. 87% agree capturing and sharing the right data is important to effectively measuring ROI in their own company (source: BRITE/NYAMA)
  3. 87% of marketers want to know how to know how to measure their return on investment for social media activities (source: Social Media Examiner)
  4. 85% use social networks in some way; only 14% tie financial metrics to it. (source: AdAge)
  5. 84% of social media programs don’t measure ROI (source: Mashable)
  6. 82% of marketers who blog see positive ROI for their inbound marketing (source : HubSpot)
  7. 81% of marketers would increase spending on digital, mobile, and social channels if they could better track ROI (source: Compete.com)
  8. 70% says a “cross-platform model” for ROI on their business is a major goal (source: BRITE/NYAMA)
  9. 63% of CMO’s say “ROI will be the standard for their performance by 2015:” yet, today, only 44% say “I can measure ROI.” (source: McKinsey)
  10. 41% of company respondents report that they do not have an ROI figure for any of the money they spend on social media marketing (source: Econsultancy)
  11. 57% do not base marketing budgets on any ROI analysis (source: BRITE/NYAMA)
  12. 37% aren’t able to measure the value of social media (source: Econsultancy)
  13. 52% of marketers cite difficulties in accurately measuring ROI as their biggest source of frustration in social marketing. (Source: Adobe )
  14. 52% say achieving or increasing measurable ROI is a top priority for the coming year (source: MarketingSherpa)
  15. 51% say a lack of sharing customer data within their own organization is a barrier to effectively measuring their marketing ROI (source: BRITE/NYAMA)
  16.  39% say it is important to spend only on marketing activities where financial effects can be measured (source: BRITE/NYAMA)
  17. 37% do not mention financial outcomes when asked to define ROI (source: BRITE/NYAMA)
  18. 28% of CMO’s say their decisions are based on gut instinct (source: Edelman)
  19. 24% say determining any kind of cost-benefit analysis is a challenge. (source: McKinsey)
  20. 22% base marketing decisions on gut instinct (source: BRITE/NYAMA)
  21. B2B CMO’s say demonstrating ROI is their No. 1 concern yet fewer than 20% say they have the ability to measure it (source: Forbes)
  22. 7% say most of or all their spending decisions aren’t based on any metrics at all (source: Edelman)
  23. “How do I measure the return on my social media investment? This question has been top of mind for marketers for the last three years. Clearly very few marketers have figured this one out. (source: Social Media Examiner)

Does this explain why companies struggle with ROI to you? Does your organization apply ROI to your business?

Rob PetersenRob Petersen is an experienced advertising and marketing executive and the founder of the BarnRaisers agency. Follow Rob on Twitter: @RobPetersen

 

 

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