How social media marketing defines ROI

On “Social Media Blog,” which discusses the business end of social networking, a basic but often misunderstood topic of social media ROI was highlighted.

The points were pretty simple: social media is growing, and budgets are growing and will grow in 2010 and beyond; ROI is often misunderstood in terms of social media; and a clear definition of how ROI works.

How much are budgets going to grow through 2010 for social media marketing?

First, consider the return on investment policy many companies have. Are they expecting a financial impact or more of a branding route for marketing? What are their goals? The blog post quoted another source on how social media spending is going to increase in leaps and bounds from 2009 to 2010.

It’s expected the majority of companies within the field plan to spend more on social media, while a smaller number plan to continue spending the same amount.

In order to see whether or not companies will focus on ROI for social media marketing, you have to know what is and isn’t ROI.

What’s not ROI?

-The number of followers you have on Facebook, Twitter, and MySpace, or the connections you have on LinkedIn.
-An increase in page views
-Increase in brand awareness

A return on investment is when a customer makes a purchase, and the profit you make from that purchase. Technically, it could be a click on an ad, a pair of shoes, or a service sale, but the point is you initially invested money into bringing the customer there, the ROI, and they bought something. In math, it’s the amount of sale minus your expenses which equals profit.

There is also a misconception on what ROI is in terms of the past and future. ROI happened. It’s not projected sales for 2011 or 2012. It’s the actual rate of sales you made in the past.

ROI is the financial end of the social media marketing event, not the non-financial. That means your social media marketing budget should account for increase in sales, not hits, subscribers, or other non-financial aspects.

With social media marketing performance being more and more about ROI, it’s important to keep the definitions correct in order to plan a budget.

The post also contains a very relevant slideshare presentation by well-known social media marketing expert Olivier Blanchard (I already mentioned him in my follow-up post on my ‘open post to the pied piper of the online world’.

Click your way through the presentation below and I’ll talk more about ROI in general later. Not only from a social media marketing viewpoint but from a much broader perspective.