In this week’s In-Ear Insights, Katie and Chris discuss social media ROI. What is it, how do you compute it, and why do marketers do such a bad job with it? Learn the most common mistakes with social media ROI, when it’s useful as a metric, and what your next steps should be to find yours. Tune in now!
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Machine-Generated Transcript
What follows is an AI-generated transcript. The transcript may contain errors and is not a substitute for listening to the episode.
Christopher Penn: In this week’s In-Ear Insights, let’s talk about social media ROI. This is a topic that comes up every year, about the same time of year. And that’s largely because you have big events like Social Media Marketing World, where people are going and learning all about social media, particularly organic social media, and stakeholders are asking, “So, what’s the ROI of all these activities? What are we getting for our money?” So, Katie, when you hear people talking about social media and social media ROI, what comes to mind for you, both as a marketer and as a stakeholder?
Katie Robbert: Well, it depends on what you’re using social media for. You know, and I think that that’s really where you start, is what is the purpose of incorporating social media into your marketing plan, so therefore, you know what to measure. So for example, at Trust Insights, we use social media as an awareness tool. And so my ROI would be something around how strong my top-of-funnel is, how strong the awareness is. Do I have enough traffic coming to my website from social media that then feeds the middle and bottom of my funnel? So that would be my “quote-unquote” ROI on social, but for some people, especially for small businesses that offer products, social media can be a direct selling tool. For example, on Instagram, a lot of businesses sell directly through Instagram – jewelry, pottery, T-shirts, whatever the thing is. So for them, their ROI would be revenue sales, repeat customers. So it just – that’s my first inclination – is why are you using social media? How does it fit into your overall journey? What about you, Chris?
Christopher Penn: I come back to the semantics of it – ROI stands for return on investment. So what are you investing in? What did you get in exchange for that investment? And it’s a pretty straightforward math formula: earned minus spent divided by spent. Which means that you have an objective that is not a dollar amount – you cannot use ROI as your outcome. I think that’s a really important distinction. And we’ve had people talk about and read books like Return on Humanity, Return on Emotion, Return on Engagement, and all this stuff. Like, “Okay, that’s nice. But if you’re a CFO, or you’re dealing with a CFO or a finance person, they’re gonna say, ‘So, in the words of Jerry Maguire, show me the money.'” And for something like awareness, which is one of our goals, awareness as we measure it, is not a monetary outcome. It leads to a monetary outcome, but it is not a monetary outcome. Therefore, ROI is the wrong measure to be using for understanding the impact of what is trying to do.
Katie Robbert: Do you think ROI has become one of those terms that doesn’t really hold any meaning anymore? And so, you know, it sort of stands in as the placeholder of like, “How much money did we make?” without factoring in all of the other pieces that go into calculating the true ROI?
Christopher Penn: It is definitely misused by people who don’t understand the financial rigor that is supposed to go into the term. It is definitely misunderstood. So, yeah, I would say people sort of interchange results with ROI. And they’re very, very different. It’s like exchanging, you know, how fast is your oven heating up with cooking a dish, right? They’re very different outcomes. And depending on what you’re trying to do, like you said, determines which measure you should be using. ROI is a bad measure and a bad outcome to use if you are concerned about something that is not efficiency. It’s a measure of efficiency – how efficient are you per dollar spent – which is what ROI is good at measuring. It is not a good measurement for growth or market share. So, if your board of directors says you need 18% market share, you throw ROI out the window because you have to get that market share. You should not be using ROI in that situation.
Katie Robbert: So, okay, let’s assume that people are using ROI correctly. They want to understand how much they’ve invested and how much they’ve earned back, whether that’s financial or top-of-funnel or whatever the return is. How do we do that with social media? Obviously, it comes down to the purpose, but how do we know how much time and effort we’re investing so that we can calculate the ROI? I know that there are tools that are trying to automate that, but are they missing a lot of the input on the front end?
Christopher Penn: For sure, because return on investment means you have to know what you invested, what you spent, and how much you earned. So, on the spent side, if you’re not counting the time that people spend on social media, you’re missing a huge chunk of your expenses because people’s time isn’t free. That hour that somebody spent replying to people on Twitter is an hour they could have spent sending an email, designing a billboard, or just drinking coffee. They could have been doing something else in that time, but instead, they were doing organic social media. So, that’s a huge part. And the way we tell people to calculate that is to determine the total cost of that employee on an hourly basis. If you’re paid $60,000 a year, your hourly rate is roughly about $30 an hour. So, if an employee spends 10 hours a week, that’s $300 of soft dollars that go into organic social media. Are you getting $300 of value out of it? That’s how complex this can get – you have to look at the opportunity costs of social media.
Katie Robbert: So, how are tools like Agorapulse approaching it?
Christopher Penn: A lot of companies use Google Analytics data for this. They’ll say, “Okay, if you have a goal set up, and you have a monetary value attached to that goal, and you can see social media, particularly organic social media, coming into a tool like Google Analytics and what the conversion values are, you can then infer, okay, I’ve set this amount of stuff into GA, and here’s theoretically what was earned.” They don’t take into account the soft dollar cost. They only really look at the hard dollar costs. That’s a case where you’ve seen a lot of that conflation of ROI being the same as results when it’s not.
Katie Robbert: How granular would you advise a company to get with that investment cost? At what point do they have good enough data? For example, do we need to calculate down to the minute the cost for the piece of software that creates the social media card? If I only spent five minutes on it, that was roughly $10. Then I spent 20 minutes thinking about it while making breakfast, that’s X dollars. Then I talked to you about it, and our time combined. Then I did the first draft, and you came back with edits, and then I revised it again. Where do you draw the line in terms of how much we invested?
Christopher Penn: I would actually ask you that as a CEO, someone who’s responsible for the company’s performance. How granular do you need to be to make decisions to say, “This is just a waste of time, Chris,” or “Let’s do more of that”? How do you know that?
Katie Robbert: I mean, I asked you first. I’ll answer it, but I asked you first.
Christopher Penn: Unsurprisingly, this comes down to the level of risk, right? What is the risk of burning five hours of somebody’s time, or 10 hours of somebody’s time, or 40 hours of somebody’s time? If you have a marketing team of 50, then the risk is pretty low, right? I mean, you’re always going to have underperformers on a team, and you’re going to have above-average performance on a team. And if your team is large enough, then you can have more flexibility. If you are a scrappy startup where every hour counts, then your risk is higher if that employee is not doing something productive. There, the business is not going to move ahead as fast. If your use of social media is for things like reputation management, customer service, your risks are substantially higher if you don’t have somebody doing that right. Because if a customer complains, and you ignore it, and then it blows up and becomes this thing that is reputation-damaging, then what was the cost of that reputational hit that goes well? That’s essentially a negative ROI. If you’ve lost a million dollars of business because somebody did something stupid like spit in the food on the production line at your restaurant, and now you’ve got this firestorm, you have to take that into account. Like, hey, we lost all this money because we weren’t doing our due diligence of paying attention to social media. So for me, it comes down to a risk calculation: What is the expected reward? What is the expected risk? And is the investment you’re making commensurate with the rewards you expect, or the risks you’re trying to mitigate?
Katie Robbert: And see, I was looking at answering that question in a more high-level way. So, for us, the estimates are good enough. And so we can say we roughly estimate we spend, you know, back-of-the-envelope, five hours a week constructing, posting, and responding to organic social, and from that, we get X number of links to our website, which, as we go down the funnel, will turn into this. And so that’s sort of where I look at it. Like, that is a calculation that makes sense. I don’t need to go down to the dollar and cents, but we’re not the type of business, to your point about risk, that needs to get that granular. What we do is not life or death. And so someone posting “Trust Insights is the worst agency in the world, I hate them, I’m never going to hire them” – okay, well, you’re entitled to your opinion, but it’s not necessarily going to get us in trouble with the FDA because we don’t do things that involve human lives. We’re literally looking at website traffic data and maybe some of your CRM data – that’s an oversimplification. But the stuff that we do is very low risk in terms of there being some utility, so I’m okay with estimating the investment and estimating the return. Now, that situation might change down the line, and so that’s data that I would need to think about: what do I have? And what am I missing? And how far back can I go in terms of my return on investment for social media? Do I need to include the active channels and the passive channels? Probably. And by that, I mean, where are we actively monitoring and responding, versus where are we just posting and hoping for the best? TikTok is one of those places that I would consider to be a passive channel for us, because we literally post the podcasts and the livestream, and then we don’t pay too much more attention to it. Whereas Twitter and LinkedIn, I would say, are more active for us. And so we’d also have to start to get into those decisions of: do I want to count the three minutes that it takes to also post to TikTok? Or do I just really care about the channels that I’m putting more thought into?
Christopher Penn: Exactly. One of the best things you can do is look at a multi-touch attribution report. This is the one that we generate with our software, but obviously, you can use the stock reports built into Google Analytics and things. The general best practice is to look at the percentage of conversions. In this case, we’re looking at new users because awareness is one of our strategic goals. And then say, of that channel, is the percentage of conversions proportional to the investment we’re making, right? So it’s not direct ROI. It’s not earned media spent. So be clear, this is not an ROI measurement. But it is a representative measure of how much investment you’re making in time versus the results you get. For example, LinkedIn shows up in position five as 3.5% of our new users essentially, and it is the highest-paced social channel, followed by Twitter at 1.2%. So the question to ask ourselves would be, are we spending three times as much time on LinkedIn as we are on Twitter? If the answer is no, then if we know we’re spending about equal amounts of time, looking at this, I would say we should spend some more time with LinkedIn and see if we can get a proportional increase in the amount of new audience we get out of LinkedIn by being there more often. So that’s one of the things I would say that is accessible to everybody, and that is a good starting place for understanding your ROI: what are you getting, and how does it compare to the time you’re putting into it?
Katie Robbert: Well, and I can look at this and go, “Okay, that tracks,” because we’re spending about 15 minutes a week on LinkedIn and zero minutes a week on Twitter other than scheduling content. So that tracks. If we could up it from 15 minutes to 30 minutes, then that would be interesting to see what happens. And so for us, social just hasn’t been a priority because of the bandwidth that we have. We just can’t physically prioritize it over other things at the time, and that may change. We may find a resource who can prioritize it. But for right now, none of this comes as a surprise to me because we are doing the bare minimum on social media. So I would expect the ROI of our organic social to not be great because we’re not putting into it what we’re hoping to get out of it.
Christopher Penn: Exactly. But a good attribution report can help you do that prioritization to say, “Okay, well, here’s looking all these channels. Let’s try some more LinkedIn.” But you look at this list and go, “Wow, Facebook, I mean, we don’t do anything with Facebook at all, and if Facebook is on there, so that would be another one of those things is like, do we need to? Like, do we need to hold our nose and do something with Facebook because it’s showing up with zero effort whatsoever?” You look up things like Guild on here, which is a private social media network. Do we need to be doing something with that? There’s Substack in here. Do we need to figure out why that’s even in here because we don’t operate, except actually, we technically do. But it’s not. It’s not for the company. Instagram’s on here. So those will all be starting points if we know we’re not doing anything with a social network. So yeah, maybe there’s a there there. If it’s sending us traffic now, and we’re making literally no effort, there might be some fertile ground there.
Katie Robbert: And so when we go back to your original question, Chris, of what is the return on investment, we can look at this and go, “Well, you know, it’s doing something. So we are, back of the envelope, getting a positive ROI for our organic social efforts because people will tag us into stuff on Facebook. If one of us does an interview or if we’re showing up at an event, someone will tag the company into that post. We didn’t have to do anything. But we did have to make the content available, we did have to be present at the event. And so that sort of goes into that question of how far down the line do you calculate investment? Because if we’re looking strictly at what we do on social media, it’s minimal. But in order to have stuff to put on social media, that’s where all of our time goes. And so the posting to social media might be minimal, but the actual content creation, the thought leadership, the editing, the ideation, all of those things, that takes a lot of time. And so in that case, yeah, we would have a really negative social ROI. Because without any of that work, without any of that content, none of this matters.
Christopher Penn: That’s right. And that’s where you have to distinguish and draw a line between the creation of the content itself and the distribution channels. Because, for example, we’re working on a paper, and we distribute that paper. If we made it solely for social media, then, yeah, you could say that the labor spent on that goes to social media, right? It goes to the cost side. But if we made it, and it goes up on a website and goes on social and it goes in our email newsletters, and we’re promoting it onstage and we’re running Google ads, then from a cost perspective, that becomes a shared cost across all of those channels because it wasn’t made for any one of them. It was made for all of them. We’re trying to drive attention to it in as many different ways as possible. When we put up a new course, like our “Measurement Strategies for Agencies” course on our LMS on our Trust Insights Academy, who do we make that for? Do we make it for Twitter? No, but do we share it on Twitter? Yes, absolutely. And so from a financial perspective, we have to almost separate out the creation and then look at the income that it generates as an asset overall and look at the channels almost separately. It’s a very complicated system of parsing credit.
Katie Robbert: So then back to your original question, Chris, about these tools that are calculating social ROI? Are those numbers that a marketer can trust?
Christopher Penn: Maybe? And I say maybe because it depends on what you’re doing with the information, right? So are you using it just as a directional signal like, hey, things are going better than they were last month, or they’re going worse than last month? Or are you trying to hand something off to your CFO? I would say there isn’t a single tool on the market period that will generate a result that your CFO will be happy with. They will look at that and say, “Your math is terrible. You forgot this, this, this, this, and this, and all of those go into an actual ROI calculation,” and so you will be shown the door fairly quickly out of your CFO’s office. If you are doing apples-to-apples comparison with the same number over a period of time, then yeah, I think it could be useful for direction to say, “We are more efficient this month than we were last month in what we’re doing with our marketing. We’re getting better results with less effort, we’re earning more and spending less.” That, I think, is where any of these tools could be useful if the person looking at the numbers understands what they’re good at, what they’re not good at, what the numbers are good at, and not good at.
Katie Robbert: So it sounds like if you’re in the situation where your CFO is really challenging the numbers and tying it back to revenue, then using one of these tools might be a good starting place. But you need to dig deeper and probably set up recurring formulas and inputs and do business requirements gathering to understand what are all the pieces that go into the investment, and what are we defining as return, especially if it’s top and middle of funnel. Those are not as concrete as revenue numbers, they lead into revenue, but maybe that’s not how your social media works. And so if your CFO, and I would imagine that this conversation is happening a lot lately, is asking what is our entire return on investment with social media? The first question you need to ask is where does social media fit into our funnel? Is it primarily awareness? Is it primarily engagement? Is it primarily purchase? Those are three very different pieces of the funnel that you would calculate differently. But you also need to understand what your funnel is in order to do that calculation. So you can see you start to continue to take a step backward before you can even get to, is our social media working as expected? You have a lot of other things that you need to understand first.
Christopher Penn: Exactly. And I’ll throw an additional wrench in there. We haven’t even talked about customer retention, and loyalty, and yet, that is a critical part of the customer journey. And it’s not something marketing thinks about when you’re posting content on social media. Is any of that content dedicated towards customer retention? Now, you might say maybe what we put on our Facebook page is not, but it absolutely could be if that’s something that goes in your Slack group, for example, you might be posting stuff in there that is unique to your Slack group, so that you can say, yeah, this is just for this special group of people. And is that a good return on investment? Or how do you calculate that? You’d have to calculate that based on churn rates and see if people who are exposed to our social media content and interact with it as customers, is their propensity to drop us as a customer lower than people who did not get that information?
Katie Robbert: Well, and again, that goes back to how you are using social media. So our friend Brooke over at B Squared Media does talk a lot about retention and customer service and using social media for that. If she was asked to calculate the ROI of social media for any one of her clients, it would likely be in that bucket of customer service, retention, loyalty. We personally don’t necessarily think about it from that aspect. So we wouldn’t do that calculation. But, you know, we would need to then figure out: is that something that we need to factor in? Because it is how people figure out what we’re up to next? Or, you know, if they want to stick with us because our views align with their views and they didn’t really notice that when they first started working with us. But that isn’t necessarily something you would get directly from social media. That again goes to actually talking with those customers to say, you know, are you following us on social media? You know, maybe the brand isn’t following, but you know, three of the team members so we’ve never interacted with are following us? And we don’t know. And so how do you tie those things back? And so that is not something you could directly get out of just a social media tool. You would actually have to talk to the customers and do that research, that qualitative research to figure out: do you even know that we’re on social media in the first place? And how do you use social media? So again, it’s sort of that deeper layer than just, “Well, we spent five minutes posting and we got $10,000 back. Oh, my God, our ROI is amazing.”
Christopher Penn: Exactly. And that’s where advanced analytics really come in. Doing stuff like multiple regression analysis is so vital to understand the holistic picture of all of your marketing, all the efforts you’re making, and then the ultimate outcomes that you’re after. If you don’t have that built out, it’s very difficult to understand what any one channel’s contributions are to any part of the funnel. And if you’re good at math, you can get at least a directional understanding, if not a few is some precision, that says, ‘Yeah, our return on investment for top-of-funnel, inferred based on the value of a website visitor, for example, is x. But our return for retaining a customer because we did a binary classification model, customers who interact with us on social versus customers who don’t, is y because our social works better as a retention tool than it does as an awareness tool.’ So all those are computations that are mathematically possible. But I don’t think most marketers have the technical knowledge or the mathematical knowledge to know that those things are possible and to ask their teams to build those models for them.
Katie Robbert: Well, and I would say, even before you get to whether or not you have the capability to build those models, I think that there’s not a clear purpose to any one given social media platform. So, we’ve talked about this before, and this was true for us as well. Okay, we’re starting a new business, or we’re launching a new product. Let’s get it up on social. Well, which social? I don’t know all of them. Let’s just see what happens. And you know, we’ve 100% been guilty of that. Okay, we started Trust Insights. We should have a digital footprint that includes social. Why? Because people expect it. What do they expect of us? We didn’t get that deep with it. We just said, let’s make sure we have profiles on all the major networks and figure it out later. Well, guess what? Five years later, we still — and this is me putting us on blast — we have never sat down and said, ‘You know what? Twitter really works well for this part of the funnel, whereas LinkedIn really works well for this part of the funnel. Whereas Tiktok is really great for this part,’ but we haven’t done that work. And so, I would say that we would struggle to really understand the true return on investment of social media. For us, we’ve talked about how we can do it, you know, broad strokes, we don’t put a lot of effort into it. And therefore, whatever we get back, you know, is in the positive, that’s great. But we could go deeper with it. And if we’re talking with a client, those are the questions we challenge them with: ‘Okay, so you’re doing a lot of Facebook? Is that where your target audience is? How are you spending your time there? Are you engaging with people, or are you just passively putting out information and then walking away?’ Understanding how those channels are being used and for what purpose is really going to inform that overall calculation of what did we get back?
Christopher Penn: Maybe one of these days on the live stream, we will build our regression model live and embarrass ourselves in public as we attempt to figure out what channels and activities correlate with that awareness goal and that engagement goal and things because we’re collecting the data in our Google Analytics 4 account. As well, use it?
Katie Robbert: Well, and I would say, you know, it’s not necessarily an embarrassment to us because we’ve been very clear with our audience and our clients that social media is not one of our core competencies. Could we be doing more with it? Absolutely. We just haven’t prioritized it. So I would not be surprised if the results came back out of, you know, there’s one or two posts a month that are telling people who you are, but then it kind of ends there because they don’t get any more information. None of that would surprise me because I’m very well aware of the effort that we put into it. And the effort is, you know, as minimal as it gets. The only thing we could be doing differently is not posting on social media at all, then we would be doing zero things.
Christopher Penn: Exactly. Well, maybe that’d be a good exercise sometime. So it sounds like in terms of social media ROI, the number of pat answers that you get from any tool on the market is never going to be as good as spending the time and putting the effort into building the model for yourself with the right tools, the right people, and the right methods. And expect, as with all things around financial computations, that you will get a lot of questions about it, and expect that you’ll take a lot of time to get to a working model. And then, at that point, you get to ask your powers that be, ‘Hey, is it actually worth all the time we’re spending to get to an ROI number, or just want us to go and do the thing?’
Katie Robbert: Yeah, I mean, that’s always where you should start: What are you going to do with the data? What question is this answering? What problem will resolve? And by knowing this information before you go on the wild goose chase, you may not have the ability to ask that question. You may be in a position of, ‘Just do what you’re told.’ But once you sort of get that assignment, there are a lot of additional questions that you can ask to start to understand, ‘Is this even a useful number?’
Christopher Penn: Exactly. If you’ve got some social media ROI stories you want to share, hop on over to our free Slack group. Go to trust insights.ai/analytics for marketers, where you have over 3000 other marketers asking and answering each other’s questions every single day. And wherever it is you watch or listen to the show, if there’s a challenge you’d rather be tuning in on, we probably have it. Go to trust insights.ai/ti podcast. We can find us on most other places. And while you’re there, leave us a rating or review. It does help to share the show. Thanks for tuning in, and we’ll talk to you soon.
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Trust Insights (trustinsights.ai) is one of the world's leading management consulting firms in artificial intelligence/AI, especially in the use of generative AI and AI in marketing. Trust Insights provides custom AI consultation, training, education, implementation, and deployment of classical regression AI, classification AI, and generative AI, especially large language models such as ChatGPT's GPT-4-omni, Google Gemini, and Anthropic Claude. Trust Insights provides analytics consulting, data science consulting, and AI consulting.
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