Defining Clear Goals
As a standard formula, ROI is pretty basic, ROI = (X – Y) / Y, where X is your final value and Y is your starting value. In other words, if you invest $5 and get back $20, your ROI is (20 – 5) / 5 = 3 times your initial investment. In the financial sense, ROI is measured purely in the context of dollars and cents, however, the principles can really apply to any type of investment — monetary or not.
Having concrete goals and concrete baselines is crucial to calculating your return on investment. So before you set out to measure and monitor your social media returns, you need to have a clear idea of what it is you want to accomplish.
Once you have your goals defined, you need to gauge the baseline for your levels before starting or changing your social media strategy. For example, if your goal is to increase social media mentions of your company, in order to measure the ROI of any actions taken toward that goal, you need to know where you stand now. You can’t evaluate the ROI accurately without a baseline.
Although ROI ≠ metrics, traditional web metrics like traffic counts, number of comments, Twitter (Twitter) followers, Facebook (Facebook) fans, etc. are an important component when calculating your ROI.
The trick is to not rely solely on the numbers, but on what the numbers end up leading to. For instance, does your increase in website visitors correlate with higher sales? Are people that find your website from Twitter or Facebook then clicking on your product pages or going to the e-Commerce section of your site? That’s the sort of data you want to be able to look for. (Check out Mashable’s list of preferred tools for this here)
Having a metric for something like Twitter mentions is pretty meaningless if you don’t know if those mentions are positive or negative. This is where sentiment analysis is interesting. Sentiment is also a useful baseline to look at before implementing or changing a social media strategy and calculating your ROI. (Recommended tools available in original article)
Making the Data Usable
This is the hard part. After you have defined your baseline, you need to take the metrics from your monitoring tools and see how they correlate to higher sales, better customer retention, or whatever your primary markers for output are.
If your ultimate measurement is sales for instance, look at your sales level. If it has increased, look at the number of referrers on your e-commerce site (assuming you can track this data) from your website or Twitter or the number of coupons used that were given away in a Facebook campaign to start calculating which sales stemmed from your social media campaigns.
Do you see any trends? Is traffic up to your store after posting on Facebook? What about Twitter? Does store traffic correlate with more sales when evaluating that same data? Does a higher sentiment analysis on Twitter lead to more sales or more visits?
Finding trends and tracking them back to their point of origin is the key to measuring ROI.