Jul
02
2010

Social Media Marketing – Be Careful About ROI

Businesses big and small are undertaking social media marketing campaigns in a significant way. And many of these same companies will also tell you they’re not sure whether their social marketing campaigns are paying off.

But the question whether social media marketing is profitable doesn’t seem to be slowing anyone down.

And here’s why …

First, let’s backup a bit. For any business, and especially a small business, if you want to maximize your marketing budget, you want to make sure you get the best return on investment possible for every marketing dollar you invest. We simply refer to this as your marketing ROI.

Basic Marketing Measurement and Return

In order to understand your marketing ROI, you have to track and measure your results. Many types of marketing campaigns are very measurable, especially online. For example, with tools and technology readily available today, you can track the necessary variables to calibrate and measure a PPC (pay per click) campaign or a typical banner advertising campaign, including traffic sources and volume, CPC – cost per click, conversions, and sales revenue that results directly from your marketing campaigns.

This makes it straightforward to determine whether you loose or make money for many of your specific marketing campaigns and activities. If you can achieve a 25% ROI, it simply means for every $1.00 that you invest in a particular marketing campaign, you see a $1.25 in return (or a $0.25 profit).

I don’t know about you, but if I can consistently see a 25% return on my money, I’ll fund a profitable engine like that all day long!

And of course, the converse, if you see a negative 30% return, it means for every $1.00 that you invest, you lose $0.30. Worse yet, the more you spend on a losing marketing campaign, the more you lose. Again, I don’t know what’s more heartbreaking. Throwing money down the hole at a marketing campaign that you know is losing money, or squandering your precious resources on a marketing campaign that you don’t even realize is losing money.

Hard to believe, but we see this more often than you might realize.

ROI and the need to understand whether you are making or losing money with your marketing campaigns seems obvious, but it’s always amazing to me how many small business clients don’t know whether their marketing efforts are paying off or losing money.

Marketing is a Numbers Game

The simple truth, not all marketing campaigns are going to make money. To some degree, marketing is a numbers game. Some campaigns will take off and others won’t. It’s your responsibility as a small business owner to know which campaigns are making money and therefore, should continue. And which campaigns are losing money, and should be discontinued to curb further losses to your business.

A marketing campaign that’s losing money is also an opportunity cost. Money that you’re throwing away at a losing campaign can and should be funneled either into a.) an existing marketing campaign that is making money or b.) into a new marketing campaign that you can test and attempt to produce a positive return.

The other constraint working against all businesses is time and resources. As a small business operator, you only have so much time to allocate to your marketing activities. All the more reason why you have to measure and understand your ROI so that you make the most efficient and productive use of your limited marketing bandwidth and budget.

Again, this is marketing 101. Yet it’s still amazing how many small businesses don’t understand their marketing numbers!

Actually, this is one area where we’re often able to help many of our small business clients dramatically. Simply putting some fundamental tracking and measurement in place can often lead to double the returns for the same marketing investment.

But what about social media marketing. Why are so many businesses, both large and small, confessing that they really don’t know whether their social marketing campaigns are paying off?

The reason has to do with measuring social marketing ROI. Unfortunately, tracking and measuring a social media campaign is harder to do. It’s similar to traditional offline business networking. For example, when you attend a business networking meeting, are you able to easily establish what your direct results and marketing returns from that one hour networking engagement will be?

Let’s Compare to Offline Social Networking for Local Business

At a local business social networking event, you might exchange a few business cards, and participate in several conversations and informal presentations about your business. Others may overhear your conversations and take the initiative to follow-up with you later. Or, as a result of one of your conversations, that individual may choose to refer your name to one of their contacts several weeks later. All of these potential leads and connections might be difficult to precisely trace back to the social networking meeting.

Nonetheless, you have a good sense that these business networking activities are worthwhile. Overtime, you gain enough positive indication that you’re developing new leads and growing your business as a result of these business networking activities. And that’s why social business networking continues to be so effective and meaningful for many small businesses.

Online Social Networking is Similar to Offline

The same holds true for social media marketing online. Social networking for business, whether online or off, is about making connections and establishing relationships with people. While this type of marketing may be more challenging to calibrate, in the end, good business is the result of establishing and cultivating people relationships. As humans, we all understand the value and importance of our fundamental social behavior.

When you pursue social media marketing effectively for your small business, whether it be on Twitter, Facebook, LinkedIn and many other social marketing platforms, what you’re really accomplishing is an efficient means to establish connections and relationships with real people in your market. People that can become your prospects and customers.

And while the precise ROI numbers may be difficult to measure with online social media marketing, there are worthwhile measurements that aren’t difficult to track. For example, let’s say you want to compare your Twitter marketing with your Facebook marketing. You can setup separate landing pages for your Twitter and Facebook traffic that allows you to track measure these different traffic sources independently.

Then based on your sales conversion measurement, you can determine whether Twitter or Facebook is providing you a better source of targeted traffic. Which ultimately helps you decide where to funnel more marketing dollars and efforts. And which campaigns may need further adjustment and improvement, or possibly which campaigns you need to abandon.

Bottom line, social media marketing offers a powerful marketing opportunity for small and local business. And while the ROI measurement may be a bit more elusive than other types of online marketing, if you manage your time and investment appropriately, online social marketing should be a component of most everyone’s marketing efforts today.

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