Managment review

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Donna L. Hoffman and Marek Fodor

Can You Measure the ROI of Your Social Media Marketing?

REPRINT NUMBER 52105

MARKETING

As social media applications like Facebook (here, cofounder Mark Zuckerberg) have changed the ways consumers interact with brands, companies have struggled to keep up.Target, Dell, Burger King and more are trying to learnwhat’s effective.

CanYou Measure the ROI ofYour Social Media Marketing?
You can. But it requires a new set of measurements that begins with tracking the customers’ investments — not yours.
BY DONNA L. HOFFMAN AND MAREK FODOR

THE LEADING QUESTION

How can you tell whether social media are working?
FINDINGS
Forget traditional ! ROI. Instead of calculating the return on the company’sinvestment, managers should assess consumer motivations to use social media and measure the social media investments customers make as they engage with the marketers’ brands. M ! easuring customer investments in a social media relationship reveals the likelihood of a long-term payoff, not just short-term results.

AS MANAGERS BECOME more comfortable with including blogs and social networks as
part oftheir integrated marketing communications, they have naturally turned their attention to questions regarding the return on investment of social media. Clearly, there is no shortage of interest in the topic. A quick Google search recently for “ROI social media” returned over 2.5 million hits, many seemingly relevant. Internet marketing and online retailing conferences now devote attention to ROIissues, and managers are asking themselves every day, “What’s the ROI of [substitute social media application here]?” Blog posts, white papers and case studies prepared by social media gurus, consultants and industry analysts abound, yet the answer remains largely unsatisfying. That isn’t good, especially when the CEO and CFO are demanding evidence of potential ROI before allocating dollars tomarketing efforts.1
COURTESY OF FLICKR USER CVRCAK1, STARBUCKS, SOUTHWEST AIRLINES, TARGET, DELL, SQUARE ENIX, BURGER KING

FALL 2010 MIT SLOAN MANAGEMENT REVIEW 41

MARKETING

We understand the pressures and the desire to quantify the return generated by investing in social media, but we believe most marketers are approaching the issue the wrong way. Effective social media measurement shouldstart by turning the traditional ROI approach on its head. That is, instead of emphasizing their own marketing investments and calculating the returns in terms of customer response, managers should begin by considering consumer motivations to use social media and then measure the social media investments customers make as they engage with the marketers’ brands. Handling the measurements this way makesmuch more sense. It takes into account not only short-term goals such as increasing sales in the next month via a social media marketing campaign or reducing costs next quarter due to more responsive online support forums, but also the long-term returns of significant corporate investment in social media. We will explain our reasoning in detail and suggest some guidelines for better integratingsocial media into your overall marketing strategy, but first a quick example of the kind of radical rethinking we believe is called for.

Turning Your Thinking Upside Down
In calculating social media ROI, most marketers start by measuring the cost of launching a blog, for example, and then seek to calculate the return on sales, say, from that social media investment. But a company could alsostart by thinking about what marketing objectives such a blog might satisfy (e.g., brand engagement), why its customers would visit the blog (e.g., to learn about new products) and what behaviors they might engage in once they got there (e.g., post a comment about a recent consumption experience) that could be linked to the company’s marketing objectives. These behaviors then can be considered...