How to Measure ROI for Social Media and the Long Sales Cycle

Originally posted on my DeckersMarketing.com blog

A recent discussion on Smaller Indiana focused on whether you can measure the ROI for social media. One uninformed complaint was that 1) it’s not possible to measure the ROI on social media, and 2) it’s even harder for websites that don’t allow for online sales and shopping carts. Like insurance agents or realtors, because they don’t have an easy way to buy things online and have a l-o-o-o-o-ng sales cycle.

A lot of non-social media folks don't understand how to measure the ROI because they don't use the product. I've talked to many professionals who have a hard time justifying to their bosses why social media is important, or how it can make a difference.

A common misconception is that there are no tools that allowed people to measure this kind of activity. “You can’t measure how much time you spend on social networking and then tie it back into sales” is the gist of their complaint.

Uh, actually you can. I even have the equipment to measure it. I wear it on my wrist. It has little hands that move around and tell me how long I’ve done things, or when it’s time for dinner. And with this thing and a computer, it’s actually quite simple to measure the ROI on social media. Here’s a basic plan of how anyone can do it.

1) Create a log sheet that measures my time spent on certain activities. Use Excel or Google Docs. The latter is free.

2) Budget your time. Spend one hour in the morning and one hour in the afternoon to do social networking. Spend your time wisely on LinkedIn, Facebook, Twitter, and local/niche sites like Smaller Indiana. If you have an iPhone or Blackberry, you can even give yourself some Twitter breaks during meetings, lunch, etc. Make sure you have a purpose though. Don’t just screw around and waste time. Watching YouTube videos does not count as social media time.

3) Keep track of the amount of time you spend on these activities –– use that wrist thingy I mentioned earlier –– and record it on your log sheet. This is how the lawyers and freelancers do it. They track their time in 15 minute increments, and bill their clients the appropriate amount. (Special note: realtors and insurance agents also measure their sales activities this way. Saying they can’t is just plain wrong.)

4) Use a customer relationship manager (CRM) program like SalesForce.com, as they now allow users to capture social media information. When you meet a new client, you’re already supposed to keep track of how you met him or her. You keep notes about what kind of effort you’ve put into them, quotes you’ve sent, meetings you’ve had, and time you’ve spent on them. So, just start adding social media interactions too.

5) Here’s the cool part: CRM software already lets you track sales per customer. Divide the size of their sales by the amount of time you’ve spent with them, and you’ve got not only your sales ROI per customer, but even how much the time was worth. If a sale is worth $5,000, and you spent 50 hours getting it, the sale is worth $100 per hour. If your time is worth $50 per hour, then your ROI is $2,500, or $50 per hour.

You can even break sales out by how you met the contacts. Were they referred to you by your friend, Bob? Did you meet them at a trade show? Or did you find them on LinkedIn? By using basic statistics and that high school algebra we thought we’d never use, you can see which of your efforts have netted you the highest amount in sales, which have wasted the most time, etc.

The net result is, you can see if social media is paying off for you or not. Just add up the amount of time you’ve spent on social media (that’s what your log sheet is for), add up the sales you’ve gotten specifically through social media contacts, and then divide money by time, and you’ve got your ROI.

If your total sales from social media is $50,000, you spent 100 hours online, and your time is worth $50 per hour, your sales from social media are worth $500 per hour. Your ROI is $450 per hour, or $45,000.

It’s not only small businesses that are measuring their ROI through social media. You can even download a report that shows how Toyota, Vodafone, Dow Chemical, New York Life, NetApp, and John Deere are all doing it. You can find the report and download a summary of it here.

So, if it’s working for global companies like Toyota and Vodafone, maybe it’s something smaller businesses should be looking at too. You’re already more nimble and able to move much more quickly than these behemoths. Put that nimbleness and basic common sense to use, and see if social media is beneficial to you.

I’ll even tell you where to find that time thingy you wear on your wrist.