Seventy-three percent of US companies in 2010 reported that they see social media as a powerful marketing tool for creating a dialogue between them and their customers, according to eMarketer. In 2011, eMarketer predicts that social media will become the third most popular marketing tactic after the company’s website. And yet, only 46% of those 73% see the need for an analytical framework to measure the profitability of their investment in social media, and even a lower percentage reported knowing how to measure it.
Ideally, companies should focus on measuring ROI of Social Media investment. Nevertheless, measuring the benefits of a social media campaign should not be limited to a single campaign. Companies also need to take into consideration the long term business value and effect of social media.
A unique approach for quantifying the financial returns of social media was presented in an empirical review by Syncapse “A Value of a Facebook Fan”. In this research, Syncapse calculated a monetary value of a facebook fan by dividing the incremental effect from becoming a fan to five factors:
1. Product spending
2. Brand loyalty
3. Propensity to recommend
4. Brand affinity
5. Earned media value
The authors of the study found that Loyalty is a good indicator to a marketing and product performance, while Word-of-mouth is considered to be extremely credible as a sales driver. Furthermore, Affinity to a brand can be linked to a long term company’s success and drive repeated purchases. All those found to be significantly higher in a group of facebook fans than in customers who were non-fans.
To construct the valuation, Syncapse combined those 5 variables as part of an equation that calculates a fan’s value, by statistically linking them with business and monetary results. The study found that a facebook fan spends incrementally $71.84 more per year on the brand, as compared to non-fans. However, considering also the long term effects of being a facebook fan of revenue, Syncapse concluded that the overall value is as high as $136.38 for the fans of the 20 brands that participated in the research.
Nevertheless, $136.38 cannot be used for all brands across the board in ROI calculation, since brands differ in factors such as purchase frequency, brand strength, and fans behavioral habits. However, this approach can represent an informed way of calculating the ROI for social media and measuring the positive impact that fans have on business results.
Lena Berenstein, Research Analyst