Calculating Social Media ROI for Wine
Wineries are more and more considering the extent to which they ought to really embrace "Social Media" and incorporate its use into their daily sales and marketing. I know this because no week goes by without running into a question that generally goes like this: "What's the return on investment of social media"?
This question isn't really what questioner wants to ask. What they really want to ask is this: "Will I increase revenue by utilizing Social Media."
That fact is, asking about the return on investment of utilizing social media is akin to asking this question: "Should I communicate with my customers and potential customers"?
As a publicist and media relations professional, I'm going out on a limb and saying, "YES", you should be communicating with your customers and potential customers. I offer that bit of snark in order to get to this question: "Which communication tools will most effectively deliver my message to folks I want to hear it that will result in more people trying or repeat purchasing my wine"?
When the question is asked this way, then you realize that Facebooking and Tweeting are placed in a lineup alongside things like
-Media outreach
-Opening a tasting room
-Attending wine events
-Mailing out offer release letters
-Sending Samples to Media
-Advertising
-Blogging
-Telesales
-Using a Megaphone on busy street corner
-Etc
All of these communication techniques, including Tweeting, Facebooking and other SM activities, will get the message out for wineries and nearly any other business I can think of. But, each must be evaluated for their expected ability to increase brand value because it is unlikely any winery or wine business has the financial means or the time to invest in them all. So how do you evaluate any given marketing tool?
This equation should help:
E = Effectiveness
C = Cost
Think of "E" (effectiveness of marketing activity) as a combination of 1) likelihood that the activity will result in a paying customer (PC) and 2) the repeatability (R) of the marketing activity. So if we put "E" into the form of an equation, we might get something like this: PC x R. Rank both PC and R on a 1-10 scale and you get this equation for (E) Effectiveness:
PC (1 to 10) X R (1 to 10)
The marketing tool that results in greatest effectiveness would receive an E SCORE of 100 (10 x 10), where the higher the value the better.
Now, think of Cost (C) in a similar way. Cost is the combination of 1) the demand on your time (Ti) to carry out the activity combined with 2) the monetary expense (Me) associated with carrying out the activity. If you put "C" into the form on an equation, we might get something like this: Ti X Me. Rank both on a 1-10 scale and you get this equation for (C) Cost:
Ti (1 to 10) x Me (1-10)
The marketing tool that that has the lowest overall cost in time and money would receive a C SCORE of 1 (1×1), where the lower the value the better.
Now, divide E by C and you get a crude, but not altogether ineffective way of measuring the the value of a given marketing tool.
Let's look at a couple of examples.
TWEETING
PC=1 (my view is that tweeting has only a very slight possibility of creating a paying customer)
R=8 (my view is that tweeting is HIGHLY repeatable as a marketing activity)
So, E = 8
Ti=3 (my view is that tweeting effectively does not take much time)
Me=1 (Tweeting has no monetary cost)
So, C = 3
E: 8
C: 3
TWEETING SCORE: 2.6
——————————-
TELESALES
PC=7 (It's likely you will get paying customers by hiring a Telesales company)
R=2 (Repeatability is low, unless you repeat the call)
So, E=14
Ti=2 (you are hiring someone to make the calls. You expend little time)
Me=4 (It's commission based, so expect lower margins)
So, C=8
E:14
C: 8
TELESALES SCORE: 1.75
———————————-
MAILING OUT RELEASE LETTERS
PC=9 (assuming the list is good, you will sell wine!)
R=5 (It's repeatable, but not often)
So, E=45
Ti=5 (Doing a good release letter can be time consuming)
Me=2 (Assuming the release letter is via email, the cost is slight)
So, C=10
E=45
C=10
RELEASE LETTER SCORE = 4.5
————————————
One more…
SHOUTING WITH A MEGAPHONE ON A STREET CORNER
PC=2 (You are going to scare people, making them unlikely to buy wine)
R=7 (It's repeatable, but it may be difficult because you will likely be in jail)
So, E=14
Ti=8 (You really have to commit time to this activity)
Me=8 (It's gonna cost a lot to get bailed out of jail and stand trial)
So, C=64
E=14
C=64
SHOUTING ON A STREET CORNER SCORE: .22
(I'd go with tweeting over standing on a corner and shouting)
Now, not being a statistician, my crude equations could probably be improved upon greatly and they may be somewhat worthless. But more importantly, the key understanding ROI through this method is being able to assign an accurate value to the Effectiveness and Cost of each activity. But, the point is that there is good way of thinking about ROI and Social Media just as there is a good way to think about the ROI of ANY marketing activity. Those many people in the wine industry currently thinking about the ROI of Social Media are at the starting line and that's where you first need to be.
However, if you do your homework, evaluate what kind of assets you have and understand the real costs of each marketing activity at your disposal, you should come up with a idea of whether or not you ought to pursue that activity. If Tweeting or Facebooking are calculated to build your brand and sales in a cost effective way, then get going. If you calculate that these activities will not help you, don't let anyone tell you you are missing the boat.
Thank you for quantifying something that is rather elusive!
Could you clarify something for me, please? I do not understand why something that is highly repeatable ranks a 1, while something that is highly likely to produce a customer is a 10. It seems like your Twitter example should have an E of 40, not 4. Thanks.
Martha,
Thank you, I’ve revised my Tweeting Score.
Tom-As always interesting stuff. I think part of the problem when we all start to look at ROI of social media is that there is some sort of critical mass which needs to be reached. We’ve all read Gary V’s stuff and that’s pretty much measurable, once you have 200k followers….but how do you really measure the likelihood of reaching that critical mass?
Is 200K followers really the “critical mass” necessary to carry out an effective social media campaign? I don’t think so. So the question is, what is the critical mass necessary to make a campaign worth while?
ROI is simply the dollar benefit of an activity (Return) minus the dollar cost of the activity (Investment). Maybe divided by the Return if you want a percentage.
The metrics you’ve suggested above are great KPIs, goals and benchmarks. But they are not ROI.
Peter,
When factoring time into the ROI, do you attempt to put a dollar value on it to account for it?
Also, isn’t it possible to look at what I’ve done as a a way to evaluate the what practice is likely to produce a better ROI?
The long term results of Facebook’s IPO should bring some additional quantifiable data about the ROI of social media.
I’ve read plenty of pundits who say that although Facebook is universal it hasn’t figured out how to make money. Of course this hasn’t stopped the initial valuations from going through the roof or prevented Zuckerberg from becoming a billionaire. But until we know the true success of the parent company, sinking a bunch of money into social media seems like gambling.
Nevertheless, how hard is it to start a facebook page and update it a couple times a week? Probably takes 30 minutes a week tops.
Here is an interesting article from Forbes about this:
http://www.forbes.com/sites/ciocentral/2012/03/13/community-beyond-facebook-making-every-brand-social/
What does Repeatibility mean here? Sorry for being a little slow…
Nathan,
It refers to the ability and likelihood that the marketing activity can be repeated. For example, Tweeting is HIGHLY repeatable. Few barriers to repeating the activity easily and often. However, sending out a Release Letter to a data base of customers, while repeatable, isn’t something that can occur regulatory.
Tom, thanks for providing a tool (subjective as the point assignments may be) that provides a comparison between communication options. Ordinal rankings are still better than nominal opinions!
Ranking Social Media
In my experience, social media (when done effectively) takes far more time than many people think. Each message is an important part of a company’s brand, and is therefore deserving of more time and consideration than just what is required to simply type the words themselves. Management and feedback of the employee responsible must be factored in, and one-person companies must consider the same discipline or be subject to the “Representative Weiner” category of the formerly relevant.
That said, I’m still an enthusiastic supporter of these new tools. But only when integrated into an overall communications plan that is regularly reviewed and evaluated.
Thanks again, Tom.
You can also tag your links back to your site with a URL builder and watch traffic come directly to your site from your Social Media outlets…
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Yikes, those are quite impressive formulas. I’ve had a bit of back and forth regarding the idea of social media ROI. On the surface, I feel like it’s kind of like putting a value on your friends – not something that’s easy to define.
I’m not sure if you have seen the new social media ROI reports that Google Analytics rolled out http://analytics.blogspot.com/2012/03/capturing-value-of-social-media-using.html
But it looks promising.