Pros and Cons of Social Media – ROI

Hi all, the following post is based our team – The Real World next Monday’s (7th Oct, 7pm) Google Hangout activities.   #smpro_con

Traditional Media ROI vs. Social Media ROI

In traditional media, communication is one way– content attracts an audience.  Based on counting the number of newspaper they sold and how many flyers they spread. It is much easier to form an idea of what the potential benefits a business could get from traditional media. Also, by using this, a business has a pretty good idea of who they are talking to, and the reach of their effort. Also they know how to evaluate audience respond, and figuring the ROI as a straightforward calculation to persuade investors.  Right?

Now, most of these effort are focus on social media.  I know even though on the marketing side, compare to the traditional media, the investment in social media is still not enough, however, no one could doubt that, social media is as incredibly complex as the millions of different personalities who log on to its networks every day. They are potential profit the organization want!  But, There’s not a clear direction/ strategy of communication and the benefits of social media is intangible and pretty hard to predict.  For example, when an agency post a post about your product on social media web site, the main focus of the public may be shift to comments section merely because of a unreasoned debate. And then, no one will focus on the original product, your revenue of this investment is hard to predict then. The reason behind this is that, social media integrates clicks, comments, follows, likes, pins, posts, tweets, and shares etc, and those actions may or may not translate to sales, which is hardly to predict.  To be honest, if giving sales a quick boost is the only reason an organization is on social media, then social media could only lead to failure and cost/waste much.


So, as the point of mine, benefits of social media is more based on following three points.

  1. Building brand awareness
  2. Growing targeted customer database
  3. Improving services and reputation

However, business’ reputation is really hard to manage based on organizational expect. This needs a good and experienced team with prompt and proper decision making/ strategies.

There is also several formulas and rules for organization to predict and calculate the ROI of social media online, however, these could be found easily and selected variously based on different managers’ experience and matter of fact of the organization.

Dis-benefits/ cons listed below:

  1. Unpredictable costs – software misfit, virus attack, increased member fees of social media etc. This could cause a huge damage and losing unpredictable money, as well as confidential information in somehow.
  2. Intangible costs – time consuming, unreachable campaign payback period. Estimation of a social media campaign always doesn’t work at all, and sometimes the payback period is relatively slow. Hence, during this period, the cost is very hard to estimate and record.
  3. Unpredictable revenue – how do an organization evaluate a customer’s database? Or how much is brand awareness?

Unpredictable revenue and costs let the ROI calculation been underestimate and unreliable.

As the result, businesses, small companies in particular, may lose their confidence of social media operation, as most of the investments are unforeseeable high and payback period is long. However, operating should not based on figures only, it is suggested that businesses should also consider and evaluate previous and peers’ investments as a baseline to come up strategies and make decisions.


Thanks  and Hannah for ideas support.

Comments and Ideas are welcome. Thanks all!



Calculate ROI of social media – In a real case

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.