Your social media ROI shock treatment

Today, let’s do a very simple calculation to determine how much cash your social media strategy should be generating to justify its existence. I think this might just blow your mind.

I’ll have to make some broad assumptions because every company is different, but you can insert your own numbers and do the math for your own organization.

Let’s assume you are a medium-sized company, and have one person working full-time on social media marketing. We’ll assign that person a salary of $60,000.

In a typical company, health, 401(k) and other benefit costs equal another 50% of the base salary, or in this case, an additional $30,000.

We’ll assign another 20% of base salary for overhead such as office space, shared services support and technology. That’s $12,000. We’re on a tight budget so we will forbid our new employee to do any travel, training, or company entertaining. And forget about bonuses this year. No whining, either!

So, our full-up cost for one social media professional is $102,000.

Let’s assume your company has a moderate profit margin of 15%. So, to break even and just cover the incremental costs of your new social media initiative, this professional would have to produce quantifiable new sales of $680,000. In other words, you would have to make that amount of money to have an ROI of 0.0% on a year’s worth of social media expense and effort.

That’s a lot of money for a lot of nothing, isn’t it? There are two reasons why I needed to shock you into social media de-tox.

First, I wanted to bring home the point that social media is not “free.” Even a modest effort at a small company takes a lot of time, which must be funded through the sweat of your manufacturing and sales efforts.

The second reason is this: For now, some companies may be willing to experiment with social media, but at some point the big boss is going to sharpen her pencil. If you can’t accurately and logically measure what you do, your marketing initiative will be in peril, as it should be.

The other day, I heard an “A-List” blogger tell his audience, “If your company is not expecting you to account for your efforts with financial measures, well, that’s just great — do whatever you want!”

And for a short period of time, you might get away with it. But to gain credibility as a company leader in a B2B environment, you must hold your activities accountable to the same standards as an engineer trying to get funds approved for a new production facility. You should be able to demonstrate a business case and that business case must be built on hard dollars … eventually.

In the mean time, the softer side of metrics may be the only thing available. Tomorrow we’ll start taking a look at the importance of “non-financial indicators” that can influence brand equity.

This is part 2 in a series addressing social media marketing measurement issues.

Part 2: Social media ROI shock treatment

Part 3: Irresponsible social media measurement research

Part 4: Social media impact on brand equity

Part 5: The most important question to ask in social media marketing

Part 6: A double standard for social media marketing?

Part 7: Yes, it IS about the money!

Part 8: Creating a measurement plan

Part 9: Measurement is like a bartender


All posts

  • David Breznau

    Mark –

    Thank you for your efforts. I found {grow} through Jason Fall’s recent post, so once again, thanks to Jason as well.

    As you indicated, the $102,000.00 a year represents one person’s full-time efforts dedicated strictly to social media. One would have to assume that the employee is qualified and that the company’s social networking efforts have been developed over a period of time. When business first started to develop websites, the ROI model was several years out. Business understood it was a long-term investment, as they should with social media.

    We can also assume that a business capable of hiring for this position and therefore able to make this considerable investment, has developed a “trusted” brand and has gain significant market share for its product or service. Therefore, we can also assume that the company's social media efforts have been “harvesting” for an extended period of time, and that the volume of social networking participants is also significant.

    When you consider that social media is not only about “new” sales, but also represent significant brand retention, product development and human resource initiatives, the ROI model is not that overwhelming.

    Keep up the echo-less work. Sorry about all of the "assuming."

    Some thoughts on R.O.I.


    I like that — "echo-less work" : ) Thanks!

    You're points are spot-on. Tomorrow's post addresses the issue of contribution to brand value. When it comes to the critical importance of brand equity and cumulative value of social media, the ROI calculations I propose here more or less go out the door. I thought it was important to focus on traditional value generation first because of my high frustration level with SM "experts" promising unrealistic results.

    Thanks for sharing your insights with everyone, David. Excellent thinking.

  • Jeff Swanson

    Looking forward to tomorrow's piece on brand value.

    I think you're right with some "experts" promising unrealistic results. I don't believe most marketers truly understand social media and are more concerned with getting a client to believe they are part of this new way of marketing. Next, the client demands an ROI and the "expert" has to come up with an answer about something they really don't understand.

    That's why I also back what David is saying about brand retention and other ways you benefit from social media without an immediate or clear ROI.

  • Jason Peck

    Great thoughts here. Looking forward to tomorrow's article and like others I think it's important not just to judge "social media professionals" on the sales they generate. For the most part, I'd guess that companies who hire social media managers don't expect them to do sales. Instead, they're spending money on them to educate themselves/the company, to add value to their work for clients, to look cool/enhance their image, or to increase their customer service capabilities. These are just a few examples. Would you ask your HR person or graphic designer or customer service rep to generate new sales beyond the cost of his/her salary? Not usually. I think most companies understand that hiring a social media professional won't generate direct ROI, but will help them improve as a company over time. But I'm definitely interested to hear your thoughts and to hear what others think.


    Thanks for the great comments and new perspectives. I agree that there are many good reasons why ROI may not be the most important measure. However, in any company, the value being delivered has to out-weigh the real cost.

    One of my concerns is that we are heading for a social media bust, just like the Internet bust of the late 1990s. The core reason for this famous melt-down was that everybody jumped into the game, spent millions and then looked around and said "you mean we have to make MONEY??"

    So what are we going to do to keep this from happening again? We need to be have the answer ready — what demonstrable value are we providing?

  • thebrandbuilder

    Yes! "At some point the big boss is going to sharpen her pencil" is right. Maybe not today, maybe not this year, but eventually, the ROI question is going to come up. Well put.

    Incidentally, there won't be a Social Media bust. There will only be companies that use Social Media well, and those that don't. I'll be over here working with the ones that actually want to see real results. 😉

  • Yes! Social business is still about making money, it just puts a more human framework around the endeavor. At the end of the day, though, business is still business.

    Social business, including social media prononents, should understand they need to provide a cost-benefit analysis of a social initiative (just as you would for any other corporate initiative).

  • I was recently asked if social media is expensive. My inital answer was ‘no of course not!’. But then I decided to do some research into the real cost and I found it shocking. It is so easy to get involved in social media as the thing to do, without ever taking the time to build a plan or strategy.

    Jumping into social media just because others are there, doesn’t mean that it will produce the results. However, in my experience most of the companies I talk to want to jump into social media without even determining why or what results they are expecting. That doesn’t make any business sense.

  • I just found another website breaking down the costs for 2010.( your readers may also find interesting.

    I would still like to know the comparative costs between traditional marketing and social media. Is there any such study been done?

  • Mark

    @Kerry-ann Thanks so much for stopping by. I have not seen a direct comparison of costs but it probably differs for every company any way.

  • First re …

    The other day, I heard a guest speaker tell his audience, “If your company is not expecting you to account for your efforts with financial measures, well, that’s just great — do whatever you want!”

    What bone-head, erm I mean SM Guru said that!

    And second, as told to me once by my Capo di tutti capi … ‘Hey, it aint what you are worth, it is what you earn.’

  • Mark

    @mose Great advice! : )

  • Great advice, Mark! I think people need to wake up from the delusion – This is just another way of doing business that takes time and money to make it work!

  • Thanks for commenting!

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