Return on Investment (ROI) is not really complex. It can be if you want to work out how money appreciates or depreciates over time, or if you wish to re-invest earnings as they come in – but you don’t have to approach it with all of that. For the sake of this discussion I’m going to take the simple approach.
Of course, the rub is in that same simplicity. What is the Initial Value? In that, you have to determine the original COST. And there are many factors to be considered in that. In my first draft of the Social Media ROI Calculator, I took a stab at identifying some of those costs, such as infrastructure, training, value of employee time, etc. These costs are going to be different from organization to organization.
Final Value of Investment
Now it gets real sticky. What’s the final value? That also will depend on your organization. There are many points that you can measure against.
- Actual Sales or new clients (and if you do that, you should consider Lifetime Value!)
- Cost Savings
- Increased Awareness
- Change in existing customer perception (client satisfaction)
There are probably more points, but this is probably a good start. In the Social Media ROI Calculator V1, I based a lot of the return on Cost Savings, particularly as they relate to pre-existing PR or advertising costs. We don’t need to measure whether those efforts were correct in the first place. The executives approved the activities, and thus if Social Media replaces or enhances those activities and their outcomes, then its fair game to include those costs as having been saved.