Social Media and ROI

Scott McAndrew Vice President of Strategy / scottm@terralever.com / 480.839.1080

Overview •  Introduction •  Intrinsic Value of Social Media •  From Friends, Fans and Followers to ROI •  ROI Pyramid •  Real-world Social Media ROI •  Tips for Success •  Questions

About Terralever •  Founded in 2002 •  Headquarters in Tempe, AZ

•  Office in Santa Monica, CA •  One lone Account Manager in Austria

•  45 employees •  Results-Driven, Full-service Digital Agency •  Do 90%+ of all Delivery In-House •  Facebook Preferred Developer

About Me •  Vice President of Strategy •  Work from our Tempe, AZ Office •  Focus

•  Client Strategy •  Ongoing Strategic Direction

•  Background in Online Marketing since 1995

Intrinsic Value vs ROI

social media’s intrinsic value to businesses •  Social media’s intrinsic value is transformative and an

incredible opportunity for businesses, offering unprecedented reach, insight and relationship building.

• relationships and community building • direct access to customers • ability to place oneself astride personal communication

return on investment •  The ratio of money gained or lost (whether realized or

unrealized) on an investment relative to the amount of money invested. Flat out: it’s a financial equation.

• revenue generation • cost savings • cost avoidance

ROI = ( ) gain from investment - cost of investment cost of investment x 100

From Fans, Followers & Friends to ROI

measurement

limited soft/goal oriented ROI

web/ecommerce early 90s mid 90s late 90s

email marketing early 90s mid 90s late 90s

SEM mid 90s mid-late 90s early 00s

social media mid 00s mid-late 00s now

Online Marketing and the Enterprise a known progression

experimentation acceptance reliance

increased reliance = increased budget & accountability

% of budget budget anticipated gain ROI

online media buys 8% $80,000 $110,000 38%

email marketing 22% $220,000 $550,000 150%

SEO 10% $100,000 $145,000 45%

PPC 30% $300,000 $725,000 142%

affiliate marketing 20% $200,000 $350,000 75%

social media 10% $100,000 ? ?

Example 1MM Company Online Marketing Budget If you were the CEO/CFO, what would you say?

Social Media Spending Over Time: (Duke/AMA Feb’10 / percentage of total budget)

Source: “2010 CMO Survey” - Duke University Fuqua School of Business & American Marketing Association, Feb 2011

Metrics used to measure the value of social media marketing activities 2010 & 2011 (Bazaarvoice/CMO Club Jan’11 / % of respondents, top 5 gainers, rounded)

2010 2011 YOY % Change

Increased channel sales 4% 15% 273%

Conversion 33% 66% 102%

Revenue 29% 50% 71%

Reduced returns 12% 16% 33%

Number of positive customer mentions 53% 63% 20% Source: “CMOs on Social Marketing Plans for 2011” via eMarketer with eMarketer calculations Bazaarvoice/CMO Club, Jan 27, 2001

Which of these internal social strategy objectives are most important to your program in 2011? (Altimeter Dec’10 / select up to 3)

Source: Altimeter Group: “Social Business Forecast: 2011 The Year of Integration” Jeremiah Owyang, Dec 9, 2010

The ROI Pyramid & Social Media

The ROI Pyramid: Roles View

business executives

business stakeholders

community managers and agencies

Source: Altimeter Group: “Social Business Forecast: 2011 The Year of Integration” Jeremiah Owyang, Dec 9, 2010

The ROI Pyramid: Metrics View

business metrics

social media analytics

engagement data

Source: Altimeter Group: “Social Business Forecast: 2011 The Year of Integration” Jeremiah Owyang, Dec 9, 2010

The ROI Pyramid: Metrics Examples View (there are more)

revenue, CSAT

share of voice, support response time

clicks, fans, followers, re-tweets, views, check-ins

Source: Altimeter Group: “Social Business Forecast: 2011 The Year of Integration” Jeremiah Owyang, Dec 9, 2010

Real-world Social Media ROI

Complicating Factors imperfect channel data

•  no pre-existing metrics to use in ROI calculations

no access to stakeholders

•  lack of visibility into mechanics driving of business

unreliable data

•  platform metric reporting change, platforms with spotty uptime

lack of measurement consensus

•  there are no widely accepted industry standards/methodologies

on-network activity, lifecycle measurement

•  tracking, multi-attribution often challenged if not impossible

Common Social Media ROI Measurements direct revenue

•  generated revenue directly attributable to social media activity

earned media

•  cost avoidance or value of social impressions

customer service

•  offset costs of social customer service/community self-service

R&D

•  offset costs by gaining consumer insights through social media

recruitment

•  offset costs of recruitment by sourcing and vetting leveraging social network

Terralver client example the client is real... the numbers are not...

Client Example client profile

•  sought agency partner to create a strategic approach to social media •  conversion can be made 100% online

business goals

•  short term: quality community growth •  long term: reflection in socially-driven sales

ROI measurement

• measurement of direct revenue and earned media from social impressions •  cost expressed as total soft & hard costs assessed to Facebook activity ���

•  client’s early suggestion was ‘value of a Fan/Follower’ •  result was a different model created collaboratively with Executives

Example: Monthly ROI Calculation for Facebook Only known variables • TLV of customer: $100 (client data) • CPM of Facebook homepage Ad placement: $8.00 CPM (past experience) • Facebook-driven conversions in a month: 125 (last click analytics data) • Number of monthly Facebook Impressions: 750,000 • Cost to manage community monthly: $7,5000 • Facebook monthly Ad costs: $5,000

CPM = cost

( ) impressions 1,000

cost = x CPM ( ) impressions 1,000

value = x CPM ( ) impressions 1,000

first step: rework CPM equation to solve for cost (value)

Value/Revenue Calculations Example

value = x $8.00 ( ) 750,000 1,000

value = $6,000

revenue = (125 x $100)

revenue = $12,500

earned media

direct revenue

Monthly ROI Calculation Example

cost revenue/offset cost

Facebook community management $7,500

Facebook Ads $5,000

Value/offset cost of earned media impressions $6,000

Revenue as calculated by TLV of new customers $12,500

totals: $12,500 $18,500

ROI = 48%

ROI = ( ) $18,500 - $12,500 $12,500

x 100

gain from investment - cost of investment

cost of investment

Success with Social Media & ROI

Increased Understanding of Goals = Increased Success

business goals

department goals

community manager / agency goals

Source: Altimeter Group: “Social Business Forecast: 2011 The Year of Integration” Jeremiah Owyang, Dec 9, 2010

Tips for Success don’t loose sight of Social Media’s intrinsic value

•  this presentation is just concerned with that one aspect

get as close to the business drivers as possible

• understand organizational goals and measurement

align your strategy

•  goals > strategies > tactics > measurement

put the tools in place to measure the right KPIs

•  you can’t go back

be open about your calculations

•  you will likely have to make assumptions at times; that’s normal

Presented by:

Scott McAndrew Vice President of Strategy / scottm@terralever.com / 480.839.1080

Social Media and ROI