Mittwoch, März 04, 2009

Axel Schultze: Measuring Social Media ROI - a financially sound method

A white paper (10 reasons Why Sales People Need to Care about Social Media) made me to visit the website of Axel Schultze's (a good contact from those old days) new company Xeequa.

He mentioned last week on the community blog that students of the Social Media Academy and he have developed a basic method to calculate the ROI of Social Media. It is, what you could call, a Financial ROI = measuring the investment (in money) and compare it with the corresponding profitability or margin (in money).

The SOMA Formula

Contribution Margin in currency generated from externally referred customers over cost in currency for human interaction and other cost to manage and engage in the ecosystem = Social Media ROI

or for more mathematical minded persons (from Mike Johansson)

A = Contribution margin in currency generated from externally referred customers

B = Cost in currency for human interaction and other cost to manage and engage in the ecosystem

C = Social Media ROI

A/B = C
There are a few things still missing in this formula beyond financials. Foremost the 'customers' love and advocacy within his (and our) communities and towards our services, products and the company, the efficiency of Social Media Marketing in CRM and CVM and cost reduction versus traditional means of advertising, branding, marketing, PR, CRM, etc.

Axel mentioned in the comments that this formula was developed to exclusively "as a financial model to evaluate the ROI of a $4MM investment in Social Media" and I think it is good start to give the financer what the want, before considering Social Media to be of value.

via / more Social Media ROI - a financially sound method