Return on Investment (ROI) of Social Technology implementations

Return on Investment is certainly one of the best metrics to indicate whether the social media tools you are adapting is really effective and worth it. Therefore, for this week’s blog post I will like to introduce ROI and the calculation of it.

This youtube video demonstrate a way of calculating ROI on social networks.

What is ROI?

alltwitter-roi

Experts often say “Social media ROI can’t be calculated because there are too many unknowns” or “Don’t worry about the ROI, just get a strategy and start doing something.” They quote metrics and/or key performance indicators (KPIs), but few know how to take those metrics and convert them to ROI.An ROI calculation is just a way to put your metrics into formulas to show,in numbers, how your strategy is increasing revenue and decreasing costs. ROI calculations can also provide perspective on the potential strengths and weaknesses of your strategy.
Calculating the ROI of social media involves three variables:

1. Traditional business metrics

2. Social media metrics

3. Changes to traditional business processes and metrics when social media is used in a business
By understanding the relationships and dependencies between these variables, you can gain insight into the activities, reach, relevance, and behaviors of customers. (Petouhoff & Herrman, 2011).

Calculating ROI

A perfect way of calculating ROI is to calculate the savings and costs and put them into the classic ROI formula. Which is ((Gains-Cost) / Cost )*100. In this case, I will be calculating the savings that social media tools can save on basing on replacing call centre’s calls.

Savings

First of all, there are three mini-parts in saving. Indirect/direct deflections, first call handling, and average handling time. The formula of deflections is:

1. Direct Deflection Savings Formulas:
# New Questions answered by Super-Users = (# Total New Questions Answered) x (% New Questions Answered by Super-Users # of Direct Deflected Contacts = (# New Questions answered by Super-Users) x Est Direct Deflection Rate Savings per period= (# of Deflected Calls) x (Avg Cost/Call)

2. Indirect Deflection Savings Formulas:

# of Indirect Deflected Contacts = (# Total New Question Answered per period) x Estimated Indirect Deflection Rate
Savings per period = (# of Deflected Calls) x (Average Cost/Call)

For first call handling and average handling time is basically the same as indirect/direct deflections. All you have to do is calculate the questions answered by social media tool(forum, superusers). So you’ll know how much has been saved on.

Costs

The major costs for social customer service programs center on people and technology. The ability to scale your social program will be an important factor in providing efficient and effective customer experiences while containing operational costs. The key to success is to:
• Deploy the right-sized team to support your social program

• Implement well-defined work processes for your people

• Use the right technology solutions to support your people and processes
Additionally, as you prepare your program strategy, be sure to anticipate higher demands for people and technology resources as your program gains success.

An example of costs formula will be:

Payroll Cost Formulas:

Burdened Compensation per social team member = (Salary + bonus + benefits load) x (% time devoted to social)
Total Payroll Costs = Sum of Burdened Compensation/Social team member

To conclude, taking gains and costs and put them into ROI formula will give you the ROI of your proposal. I hope anyone who have interest in calculating ROI can leave your comment below and I will try my best to give you a satisfying solution. Moreover, to anyone who wants to dig in more into ROI please read Calculating the ROI for Social Customer Service from Dr.Natalie Petouhoff and Kathy Herrmann, which are also where most of the content above came from. Thanks for reading, See you all next week!

worthithorizontal

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6 thoughts on “Return on Investment (ROI) of Social Technology implementations

  1. Hey! Great article, although now I have to consider the fact that there are so many parts of identifying the return of investment! Do you think using a formula like this is always necessary? I would imagine that sometimes the benefits of a social media strategy are so obvious that doing something like this may not even be necessary. Your thoughts?

    sammacgregor.wordpress.com

    • I think ROI can be a good indicator for companies but not always necessary .

      As Tom said :The intangible benefits of implementing social technology are probably more important than calculating $ values. A lot of big companies now look at intangible results such as customer interactions over a monetary ROI.

      However, I think its all depedns on the company 🙂

      Thx for your valuable feedback

  2. Thank you jsonhsiao for the valuable information ,you totally right and as i can see that the ROI calculations can definitely provide perspective on the potential strengths and weaknesses of the strategy.

  3. The intangible benefits of implementing social technology are probably more important than calculating $ values. A lot of big companies now look at intangible results such as customer interactions over a monetary ROI.

    • THx for your valuable feedback. From my perspective, I think culculating ROI is essesntial for some companies as an indicator :).

      Its good to know that a lot of big companies now look at intangible results such as customer interactions over a monetary ROI.

      Other than customer interactions, is there any intangible results companies could look at ?

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