Here’s an example of a challenge I recently had with measuring ROI. You are active on Twitter, LinkedIn, and your blog. You get a ping back on an article from another blogger who you begin having casual dialogue with on Twitter as well. A few months later you get a referral from the said person.

Now obviously you would want the ROI of that referral to be credited to the blog, where the conversation originated, right. But was it the blog itself, or the sum of all of your efforts on Twitter and the blog that built the relationship to the point that the person wanted to refer someone to you? It is likely the latter.

So say that you decide you are going to attribute ROI to all social media channels rather than each individually. The question still becomes how do you “track” the lead from inception through completion in a way that clearly identifies that they came from social media.

For companies that have robust IT teams, this can be done with some reasonable effort. For those who don’t, it is far more difficult.

Orientation

Did you know that ROI can be calculated on email blasts, promotions, price changes, print ads and tradeshows? With or without campaign management software, calculating ROI is an easy and often overlooked best practice that reaps benefits in bottom line performance, improved overall marketing skill sets and marketing team morale.

Remember, models such as this are only models and are not always black and white. They are meant to help marketing people focus on what they are spending for communicating results to senior management and others in the organization.

To calculate the ROI, fill out the three boxes below, then click the “Calculate ROI” button. Refer to the key on the left for input information.

Total Campaign Cost1:

Total Responses2:

Cost Per Response:

Total Campaign Revenue3:

Revenue Per Response:

ROI = Total Revenue – Total Costs

Percentage ROI: (ROI minus total costs of campaign) divided by (Total costs of campaign)

Conversion Ratio:

Conversion Rate Is Affected By:

A. The ease with which respondents can complete a purchase.

B. The attractiveness of the offer

3. The stimulus of the presentation.

Key

1 Total Costs
Includes most costs of offering the campaign. These costs include advertising, promotion, co-marketing costs, plus any variable cost that is associated with putting the campaign in front of an audience such as email blast services (Blue Hornet is an example.). This does not include the cost of fulfillment, giveaways such as all expense paid trips, freebies such as keychains & mousepads, free dinners, etc. (see Total Revenue Per Campaign). The example shown was an email blast sent to about 40,000 customers, which cost about $100 with the client’s email blast vendor.

2 Total Responses

The number of click-throughs, postcard returns, sweepstakes entries, inbound phone calls, etc., generated by the campaign.

3 Total Revenue Per Campaign

Total revenue per campaign is total revenue generated by the campaign (commissions, fees, product sales, etc.) minus the total cost of trip giveaways, freebies such as key chains & mousepads, free dinners, etc., used to generate the response.

4 Conversion Ratio
(ROI minus total costs of campaign) divided by (Total costs of campaign)

Other Definitions

Cost Per Response: Total costs divided by total responses.
Revenue Per Response: Total Revenue Per Campaign divided by Total Responses.
ROI: Total Revenue minus Total Costs
ROI Percentage: (ROI minus total costs of campaign) divided by (Total costs of campaign)

It’s also easier to measure the value of social media when you compare it against your current marketing investments. For example, if you’re spending $40,000 in advertising to drive awareness and online conversions, compare Web spikes and conversions against the salary of social media staffer to expand relationships, followers, and brand awareness.

If you want to learn more, I’d recommend signing up at hubspot.com and enrolling in their free, online social media university. Each “class” is a 1/2 hour recorded webinar you can listen to at your leisure.