Calculating Return on Investment (ROI) is a financial technique in budgeting and investment appraisal. However, when talk about the calculation of ROI of social media, it is much harder.
Firstly, we have to understand what’s business’ investment return (measured by money) and what’s the cost of investment (measured by money). Simply, the formula to calculate ROI of social media = (investment return – cost of investment) / cost of investment.
However, there have more barriers when you doing these measurement. For example, the organization of our second assignment is the Eventcorp, which is a licensed travel agency more focused on organizational assistant of creating program enhancements such as executive reward, team building, motivation, special events, gala events, product launches and major productions. The main problem is that they are randomly using social media to promote themselves. Still, several potential problems here:
1. How to evaluate the Investment Returns
This should include calculate intangible benefits including the value of customer data, customer feedback, and value of the customer etc, also it should add up with tangible benefits like any increased revenues. Assume that each customer value is $50, and social media platform has raised 51 likes in Facebook, and 38 followers only on the twitter. It should be noticed that, 6 of Facebook fans were actual customers, which is assumed as $1000 value. Hence, the total value of customer on social media platform in Eventcorp is almost equal to (51+28)*$50+6*$1000=$9950.
2. Calculate the Cost of Investment
Cost of investment include the amount of money spend on the social media, and convert the resources spent into money to consider. However, some costs are unforeseeable and very hard to predict. Based on the organizational actual case, this cost could be evaluated as the 1 hour per week, with cost of 50 per hour for since Oct in 2010, which is 52*3*$50=$7800.
The ROI of social media therefore = (9950-7800)/7800 = 0.2756
However, the calculation has many limits. First, there is not enough insights into the customer value, and the revenue/ cost figure may not reliable enough, overestimate may occur. Next, research of social media usage is based on personal point of view, didn’t support by communication of the Eventcorp.
Thank you for reading. Please comment.