Presented at AZIMA April 13, 2011, Scott McAndrew of Terralever discusses ways to measure social media as a measure of business value.

1. Social Media and ROI
Scott McAndrew
Vice President of Strategy / scottm@terralever.com / 480.839.1080

2. 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

3. 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

5. Intrinsic Value vs ROI

6. 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

7. 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

8. ( )
gain from investment - cost of investment
ROI = cost of investment
x 100

9. From Fans, Followers & Friends to ROI

10. Online Marketing and the Enterprise
a known progression
experimentation acceptance reliance
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

11. increased reliance = increased budget & accountability

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

13. 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

14. 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

15. 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

16. The ROI Pyramid & Social Media

17. 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

18. 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

19. 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

20. Real-world Social Media ROI

21. 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

22. 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

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

24. 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

25. 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
first step: rework CPM equation to solve for cost (value)
cost
impressions
CPM =
impressions
cost = ( 1,000 ) x CPM
( 1,000 )
impressions
value = ( 1,000 ) x CPM

26. Value/Revenue Calculations Example
earned media
750,000
value = ( 1,000 ) x $8.00
value = $6,000
direct revenue
revenue = (125 x $100)
revenue = $12,500

27. 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
gain from investment - cost of investment
$18,500 - $12,500
ROI =
( $12,500
cost of investment
) x 100
ROI = 48%

28. Success with Social Media ROI

29. 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

30. 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

31. Social Media and ROI
Presented by:
Scott McAndrew
Vice President of Strategy / scottm@terralever.com / 480.839.1080