A Simple Way to Calculate Social Media Return on Investment

 

 

 

 

 

 

 

 

A Simple Way to Calculate Social Media Return on Investment[1]

 Social media return on investment (ROI) is simply a measurement of efficiency. It’s a lot of things to a lot of people: “return on inactivity,” “return on innovation” and “return on engagement.”

However, in a stricter sense, social media ROI is defined as a measure of the efficiency of a social media marketing campaign. This definition might sound complicated, but in reality, it’s quite simple.

What Does ROI Really Mean?

Let’s backtrack a bit.

We’ve all heard what “ROI” stands for, but what’s less understood is the actual meaning and the importance of ROI.

In the financial world, ROI is used to measure the financial efficiency of an investment. ROI is based on the financial formula:

ROI = (return – investment) / investment %.

This means that if you increase your return while keeping your investment the same, then you increase your ROI. This is good. If you decrease your return while keeping your investment the same, then the ROI goes down. That’s bad. A high ROI is better than a low ROI.

Because the ROI formula uses only two inputs – the return and the investment – the ROI formula is an easy way to measure and compare marketing campaigns. A marketing campaign with a high ROI is considered better and more efficient than a marketing campaign with a lower ROI.

It’s important to understand that ROI measures the efficiency of an investment because then you also understand that ROI cannot be defined using alternative definitions. “Return on inactivity” does not help you measure the efficiency of your campaign.

Social Media ROI Uses The Return And The Investment

Now, all we need is to take our social media return (the amount of value that we got from our social media campaign) and our social media investment (the amount of money that we invested in our social media campaign) and run it through the financial ROI formula.

Social media ROI = (SM return – SM investment) / SM investment %.

Simple, right? Not so fast. The social media investment is clearly defined, but how do you define the social media return and how do you attach a dollar value to the return? We need to answer both questions before we can calculate the social media ROI.

Social Media Return Is The Return On Your Social Media Goals

The peculiar feature of the social media return is that you can define it to be essentially anything you want it to be!

Brian Solis from the Altimeter Group puts it even more succinctly in his article ROI Doesn’t Stand for Return on Ignorance: “Everything starts with an end in mind.”

In reality, social media return is the value that you derive from your social media campaign. For instance, if the goal of your social media campaign is to drive sales, then your social media return is the number of sales that you can attribute to your social media campaign.

Instead of sales, say your goal is to drive consumer insights. In this case, your social media return is the quantity and quality of the consumer insights you get from your fans and followers.

A third example of social media return is brand awareness. If your goal is to drive awareness of your brand, then your social media return is brand awareness.

I could give many more examples, but the point is that social media return is the value that you derive from social media based on the goals of your campaign. (Note that the number of followers, fans, Likes and comments are not social media campaign goals.)

Quantifying Social Media Return

After we have defined our social media return, we need to quantify the social media return into dollars and cents. This is difficult because you need to look at each type of social media return and develop a method for dollar quantification.

For instance, looking strictly at sales, we can quantify the social media return by looking at “last touch” sales, or we can use sales forecasting techniques or use unique identifiers such as coupon codes.

Quantifying consumer insights is harder and requires different techniques to estimate value.

One commonly used technique is to compare the quantity and quality of consumer insights from offline focus groups to consumer insights from your social media campaign.

The idea is that you know the value of consumer insights from offline focus groups based on their cost. By comparing the quantity and quality of consumer insights from both channels, you arrive at a reasonable estimate of the value of consumer insights from your social media campaign.

Brand awareness requires yet another method. In April 2010, social media analytics company Vitrue made quite a stir when they stated that according to their research, the average Facebook fan is estimated to be worth $3.60. Vitrue looked at the average number of messages each fan received and then compared this number to what it would cost to purchase impressions to send the same number of messages to each fan.

Use Social Media ROI To Compare Apples To Apples

After estimating your return and your investment, you use the ROI formula to calculate your social media ROI.

Remember, ROI is a measurement of efficiency, so having calculated the ROI of your social media campaign, you use the ROI number to compare to other social media campaigns and also your TV, print, radio and other campaigns.

ROI is possibly the most powerful tool in your marketing toolbox. This sentiment is demonstrated in Amy Porterfield’s post, Study Reveals Top 6 Social Media Goals for 2011, where she correctly points out that according to the Altimeter Group, 48.3% of all corporate social strategists will have social media ROI as their highest focus in 2011.

ROI is a very powerful weapon in your marketing arsenal.

[1] http://goo.gl/VB0wa

Prof. C.J.M. Beniers

Do Banks Learn from Crises?

Do Banks Learn from Crises?*

Crises are a regular event in financial markets. But do banks that have been hit particularly hard in one crisis learn from the experience and suffer less in future crises? This column suggests not. It shows that banks particularly hard hit by the 1998 financial crisis were also badly affected by the recent financial crisis. It blames the high-risk business models on which these banks rely.

On 17 August 1998, Russia defaulted on its debt. This event started a dramatic chain reaction. As one observer put it, “the entire global economic system as we know it almost went into meltdown, beginning with Russia’s default” (Friedman 1999). As Russia defaulted, a number of investors, including banks, made large losses. For example, the market capitalisation of both CitiGroup and Chase Manhattan fell by approximately 50% in the two months following the Russian default.

Initially, the impact of the Russian default was limited because there was hope that the International Monetary Fund (IMF) would step in to bail out Russia. When it became clear that this would not happen, prices of emerging-market securities fell sharply, and stocks across the developed world soon followed suit. As security prices fell, the capital of investors and financial firms eroded, liquidity withdrew from markets, and volatility increased. These developments led investors and financial institutions to reduce their risk, and caused a flight to safety. The president of the Federal Reserve Bank of New York testified before Congress that “the abrupt and simultaneous widening of credit spreads globally, for both corporate and emerging-market sovereign debt, was an extraordinary event beyond the expectations of investors and financial intermediaries”.1

The financial crisis that started in 2007 would eventually be described as the biggest financial crisis of the last 50 years, supplanting the crisis of 1998 for that designation. The comments regarding the 1998 crisis are not different, however, from comments made about the recent financial crisis. In particular, during the recent financial crisis investors made large losses in securities that had been determined to have a minimal amount of risk, and the unexpected losses in these securities led to fire sales, a withdrawal of liquidity from financial markets, and a flight to quality.

A strong return correlation across crises

The similarity between the crisis of 1998 and the recent financial crisis raises the question of how a bank’s experience in one crisis is related to its experience in other crises. In our recent paper (Fahlenbrach et al. 2011), we examine this question.

If an organisation and its executives perform poorly in a crisis, they might learn to do things differently and consequently cope better with the next crisis. Further – and perhaps more importantly – an unexpected adverse event could lead an institution to assess payoff probabilities differently, as has been argued by Gennaioli et al. (2011), or to reduce its risk appetite. Therefore, one hypothesis, the learning hypothesis, is that a bad experience in a crisis leads a bank to change its risk culture, to modify its business model, or to decrease its risk appetite so that it is less likely to face such an experience again. There is anecdotal evidence that executives claim they learned from the 1998 crisis. A recent book on AIG describes one Goldman Sachs executive as having “never silenced that desire to do something about the next 1998, about never being dependent on short-term funding again” (Boyd 2011, p.192.) The book goes on describing how that executive obtained authorisation in 2004 for Goldman to lengthen the maturity of its funding. Credit Suisse performed relatively well during the recent crisis and one senior executive told one of the authors that the explanation is that they learned a lot from their difficulties in 1998.

Another hypothesis, the business-model hypothesis, is that the bank’s susceptibility to crises is the result of its business model and that it does not change its business model as a result of a crisis experience, either because it would not be profitable to do so or for other reasons. For instance, recent work by Adrian and Shin (2009) shows that broker-dealers increase their leverage in good times. Such an outcome may be the result of them having the best business opportunities during credit booms, but it also makes them more vulnerable if a credit boom is followed by a crisis. Under this hypothesis, crisis exposure exhibits persistence, so that a bank’s experience in one crisis is a good predictor of its experience in a subsequent crisis.

Our paper empirically tests these two hypotheses against the null hypothesis that every crisis is unique, so that a bank’s past crisis experience does not offer information about its fate in a future crisis. We find evidence that is strongly supportive of the business-model hypothesis. We show that the stock market performance of banks in the recent crisis is positively correlated with their performance in the 1998 crisis. This result holds whether we include investment banks in the sample or not. Our key result is that for each percentage point of loss in the value of its equity in 1998, a bank lost an annualised 66 basis points during the financial crisis from July 2007 to December 2008. This result is highly significant, both statistically and economically. The economic significance of the return of banks in 1998 in explaining the return of banks during the financial crisis is of the same order of magnitude as the economic significance of a bank’s leverage at the start of the crisis!

Is it executives?

A natural question to ask is whether the correlation we document is affected by cases where the executive in charge during the financial crisis was also involved with the bank in 1998. It could be that personality traits of the executive, rather than the bank’s business model, are responsible for the bank being positioned similarly for both crises. We investigate this possibility and find it does not explain our results. Another possible explanation for our results is that banks remember a different aspect of the 1998 crisis. Banks recovered rapidly from the 1998 crisis. Investors who took positions in more risky fixed-income securities at the bottom of the crisis made large profits. It is possible that banks that recovered strongly from the crisis remembered that experience subsequently and found it unnecessary to change their business model as a result of their strong rebound. We do not find evidence supportive of this explanation.

Towards an explanation of the return correlation

What could then explain such a systematic crisis exposure? We analyse characteristics of banks that performed poorly in both 1998 and 2007/2008, then compare them to characteristics of other banks that performed better. The results of this exercise suggest that the correlation between returns during the 1998 financial crisis and the recent financial crisis is at least partly due to a business model that relies on higher leverage, more short-term funding, a larger proprietary trading desk, and stronger asset growth during the boom preceding a crisis.

Given our main result, some of the events subsequent to 1998 that have been argued to have played a key role in the performance of banks during the financial crisis have to be put in perspective. The Gramm-Leach-Bliley Act (GLBA) was signed into law in November 1999. GLBA repealed central provisions of the Glass-Steagall Act that restricted bank holding companies from affiliating with securities firms and insurance companies. The strong return predictability of 1998 crisis returns for the financial crisis of 2007/2008 suggests that part of the performance of banks during the recent crisis can be attributed to factors that already existed before the enactment of GLBA or other regulatory decisions such as the Commodities Futures Modernisation Act or the SEC’s amendments to the broker-dealer net capital rule.

Overall, our results show that financial institutions that are negatively affected in a crisis do not appear to subsequently alter the business model or to become more cautious regarding their risk culture. Consequently, the performance in one crisis has strong predictive power for a crisis which starts almost a decade later.

Building An Irresistible Brand-1

Tips for Building An Irresistible Brand-1

1. Know yourself

1. What drives you? Is there an emotion, need, desire, or past event that motivates you to take action? How can you infuse some of that energy into your brand?

2. What are you passionate about? What gets you excited, angry, or motivated to take action? How can you let your passion come through in your brand?

3. What are your strengths? Everyone has specific skills or personality traits that they are especially good at. What are yours? How can your strengths help support your brand?

4. What are your weaknesses? Weaknesses are nothing to be ashamed of. It just means you’re not as strong in those areas. In fact, acknowledging your weaknesses instead of hiding them makes your brand more human.

5. What is your personality type? Are you a “type-a” personality? A “pleaser?” Maybe you’re an extroverted sanguine or an ambitious choleric. Getting to know your own personality traits is the first step to infusing your brand with your personality.

6. What is your story? Everyone has a story. Yours might be a “rags to riches” story or maybe an inspirational “beating the odds” story. What elements of your story can you bring to your brand to make it more interesting?

7. What is your background? Where did you come from? What are your training, your education, and your experience in your niche? Did you change careers when you got started in your current niche, or did you grow up doing what you do now? Where does your background fit within your brand?

8. What are you most talented at? What is the one thing you do better than anyone else you know? Is it part of what you’re doing now? If not, why not? Can you integrate your special talent into your brand?

9. What do you have the most experience doing? Sometimes what we’re talented at and what we have the most experience doing for a career are two different things. Does your experience match up with your talents? Where does your career experience fit in your overall brand?

10. Why did you choose your career / niche / topic / market? Why did you start doing what you do now? Was it by choice, or were you forced into it? Are you passionate enough about it to build a brand around it?

11. What do you plan to offer? What products / services do you plan to promote? Are you going to be providing information as a resource only? If you are going to sell something, what will be your flagship product? How does that decision affect your branding?

12. What makes you unique? Are you a punk rocker who munches apples and writes about stories? Maybe you’re a reclusive hermit who writes about social media. What elements of your personality, experience, skills and niche can you blend together to put a fresh spin on your topic? How can you build a brand around that uniqueness?

13. What hobbies or interests do you have? What interests and activities do you enjoy outside of your niche? How can you integrate elements of those interests into your brand to help make it unique? Can you become the “skateboarding CEO” or the “mountain-climbing granny” to infuse some personality into your brand?

14. What are your core beliefs? Remaining true to your core values is an important part of making your brand authentic. How can your brand reflect what you believe and live by?

15. What makes you uncomfortable? Are you afraid of public speaking? Does confrontation make you squirm? Knowing what makes you uncomfortable will help you prepare your brand for dealing with those situations when they arise.

16. If money were no object, and you could do anything you wanted for “work,” would you still do what you’re doing now? This is more of a “gut check” question. Before you spend the time and money building a brand around what you’re doing, are you sure you want to continue in that niche?

17. What are your favorite colors? Colors convey specific messages and affect response rates, so choosing the right colors for your brand is important. How do your favorite colors compare with the colors preferred by your audience?

18. Is there a specific design style that you really like? Do you prefer modern, futuristic, minimalist, or some other design style? How does the style you prefer compare to the style preferred by your audience?

19. What emotion(s) do people associate with you? Do the people around you describe you as happy, impatient, angry, or some other emotional trait? Does that emotion come through in your brand?

20. What brands / designs from other companies make you jealous? Don’t try to copy the look or style of someone else’s brand. However, looking at other brands may help spark some ideas for your own.

21. How do you describe what you do? If you had only one sentence to describe what you do, what would you say? Are you using the same words your audience uses to describe what you do?

22. What are your goals? It’s important to plan for the future when creating your brand so it will stand the test of time. What are your plans for the future, and how does your brand fit into that picture?

23. What is your message? When your audience sees your brand, what is the primary message you want the brand to convey? Is there a specific emotion you want them to feel when they see it?

24. What are you really selling? Someone once said “people don’t buy drill bits, they buy holes.” What is your audience really buying from you, and how can you reinforce that with your brand?

25. What is your level of commitment? This is another “gut check” question. Building, implementing, and maintaining a brand requires commitment. How committed are you to the brand you’re building? Will you still feel confident you made the right decisions about your brand five year

Podcast: Kreativität und Unternehmenskultur

Thema dieses Podcasts ist: Kreativität und Unternehmenskultur. Kann man mit Kreativität Unternehmenskultur verändern? Welche Rahmenbedingungen soll man bei Kulturveränderung berücksichtigen?

Hier clicken: Kreativität und Unternehmenskultur

Über Professor C.J.M. Beniers

Prof. C.J.M. Beniers ist ein bekannter Fachmann auf dem Gebiet von modernen und internationalen Kommunikationstechniken und Entwickler vom Sechs-Komponenten-Modell. Damit können Firmen, Institutionen und Politiker mit Gesprächspartnern aus aller Welt erfolgreich kommunizieren und verhandeln. Seine Karriere begann als internationaler Manager bei Philips N.V. Später promovierte er als Professor und hat mittlerweile mehr als 35 Jahre Erfahrung als Manager und Management Trainer. Dadurch kennt er beide Seiten, die Theorie und die Praxis, sehr genau. Als Kommunikationsexperte veranstaltet er wissenschaftliche Forschungen im interkulturellen Bereich. Die interessanten Ergebnisse  dieser Forschungen sind in seinen E-Büchern nachzulesen, wie z.B. “Bridging The Cultural Gap”. Hier lernen moderne Manager sich erfolgreich auf Geschäfte mit Leuten aus Fremdkulturen vorzubereiten. Unter anderem werden aktuelle Themen wie Verhandlungen in Krisenzeiten, interkulturelle Barrieren, landesspezifische Kommunikationstechniken, persönliche kulturbedingte Wertesysteme und Missverständnisse behandelt und plausibel erklärt.

Kontakt:
Prof. C.J.M. Beniers
Amaliaplaats 2
2713 BJ Zoetermeer
The Netherlands

Telefon: +31 (0) 79 – 3 19  03 81
Mobile:  +31 (0) 6 2 061 8494

Email: info@beniers-consultancy.com
Webseite: www.beniers-consultancy.com

Podcast: Kreativität

Zentrales Thema in diesem Podcast ist der Begriff Kreativität. Was versteht man unter Kreativität? Welche Rolle spielt Kreativität in Unternehmen?

Hier clicken: Kreativität

Über Professor C.J.M. Beniers

Prof. C.J.M. Beniers ist ein bekannter Fachmann auf dem Gebiet von modernen und internationalen Kommunikationstechniken und Entwickler vom Sechs-Komponenten-Modell. Damit können Firmen, Institutionen und Politiker mit Gesprächspartnern aus aller Welt erfolgreich kommunizieren und verhandeln. Seine Karriere begann als internationaler Manager bei Philips N.V. Später promovierte er als Professor und hat mittlerweile mehr als 35 Jahre Erfahrung als Manager und Management Trainer. Dadurch kennt er beide Seiten, die Theorie und die Praxis, sehr genau. Als Kommunikationsexperte veranstaltet er wissenschaftliche Forschungen im interkulturellen Bereich. Die interessanten Ergebnisse  dieser Forschungen sind in seinen E-Büchern nachzulesen, wie z.B. “Bridging The Cultural Gap”. Hier lernen moderne Manager sich erfolgreich auf Geschäfte mit Leuten aus Fremdkulturen vorzubereiten. Unter anderem werden aktuelle Themen wie Verhandlungen in Krisenzeiten, interkulturelle Barrieren, landesspezifische Kommunikationstechniken, persönliche kulturbedingte Wertesysteme und Missverständnisse behandelt und plausibel erklärt.

Kontakt:
Prof. C.J.M. Beniers
Amaliaplaats 2
2713 BJ Zoetermeer
The Netherlands

Telefon: +31 (0) 79 – 3 19  03 81
Mobile:  +31 (0) 6 2 061 8494

Email: info@beniers-consultancy.com
Webseite: www.beniers-consultancy.com

Podcast: Changemanagement

In diesem Podcast handelt es sich um das Thema Changemanagement in Unternehmen und die Rahmenbedingungen der damit zusammenhängenden Durchführungsprozesse zu neuen Ordnungsmustern.

Hier clicken: Changemanagement

Über Professor C.J.M. Beniers

Prof. C.J.M. Beniers ist ein bekannter Fachmann auf dem Gebiet von modernen und internationalen Kommunikationstechniken und Entwickler vom Sechs-Komponenten-Modell. Damit können Firmen, Institutionen und Politiker mit Gesprächspartnern aus aller Welt erfolgreich kommunizieren und verhandeln. Seine Karriere begann als internationaler Manager bei Philips N.V. Später promovierte er als Professor und hat mittlerweile mehr als 35 Jahre Erfahrung als Manager und Management Trainer. Dadurch kennt er beide Seiten, die Theorie und die Praxis, sehr genau. Als Kommunikationsexperte veranstaltet er wissenschaftliche Forschungen im interkulturellen Bereich. Die interessanten Ergebnisse  dieser Forschungen sind in seinen E-Büchern nachzulesen, wie z.B. “Bridging The Cultural Gap”. Hier lernen moderne Manager sich erfolgreich auf Geschäfte mit Leuten aus Fremdkulturen vorzubereiten. Unter anderem werden aktuelle Themen wie Verhandlungen in Krisenzeiten, interkulturelle Barrieren, landesspezifische Kommunikationstechniken, persönliche kulturbedingte Wertesysteme und Missverständnisse behandelt und plausibel erklärt.

Kontakt:
Prof. C.J.M. Beniers
Amaliaplaats 2
2713 BJ Zoetermeer
The Netherlands

Telefon: +31 (0) 79 – 3 19  03 81
Mobile:  +31 (0) 6 2 061 8494

Email: info@beniers-consultancy.com
Webseite: www.beniers-consultancy.com

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