Understanding how social media drives business and return on investment

16 Feb 2016

Even though social media usage continues to grow globally, there are some enterprises that are still asking what it means for their business. IMI Associate Neal Schaffer explains how entwining social media in your business can generate great return on investment.

The introduction and adoption of any new technology requires companies to go through a vetting process to understand how to maximise return on investment (RoI) from such a venture. The internet itself is a great example, with many companies taking several years to establish a website, and some debating whether they even really needed a web presence as a business.

Fast forward 20 years, and we see the same thing happening with social media. It is estimated in the United States that 25pc of online time is spent on social media. If you think of the traditional attraction of advertising to television, you should note that many are spending much more time online – and therefore in social media – than consuming more traditional types of media. A brand new report suggests that more than one in three young online adults are online “almost constantly.”

We don’t argue about whether we need a digital presence anymore, and more and more organisations are embracing increasing investments in social media, not only because their audience is spending more time there, but because they are also deriving a greater RoI from being there.

The CMO Survey provides us with some interesting data: not only do increases in digital marketing budgets continue to be double-digit – while traditional marketing budgets are reduced – but social media marketing as a percentage of marketing budgets is projected to increase from its current 10pc to nearly 25pc in the next five years.

For those who don’t work in marketing departments, and those who only use social networking sites for personal reasons, if at all, it can be hard to see what the RoI from having a business presence in social media is. The fact of the matter, though, is that now almost every large business – small businesses lack behind the adoption curve because of education and/or resource issues – has a corporate presence in social media, so the question for many is not what the RoI of social media is, but rather how to maximize a company’s presence and RoI in social.

For those who haven’t seen the light in regards to investing in social media, let’s take a deeper look at the initial thought processes organisations go through before committing more budget to social media.

First of all, there are two distinct characteristics of social media you need to understand to recognize its full value to enterprises: It is a new communication channel that slowly represents the convergence of information and communication. Therefore, social media is not only a place for two-way

1. It is a new communication channel that slowly represents the convergence of information and communication. Therefore, social media is not only a place for two-way conversation, but also a place to search for information. Social networks have become huge search engines and locations where information becomes discovered. The best example of that is Twitter, often the channel where news breaks these days.

2. A large amount of social media conversations are completely public, especially on large social networks such as Twitter and Instagram. This means that you have the ability to not only eavesdrop into conversations that might be important to your own organisation, but you can also listen in to what others say about your competitors, or who your competitors are engaging with.

As you understand the compelling potential for investing in social media, you begin to see that it is a new communication channel unlike others before it.

What about measuring its RoI, though? As most executives speak in the language of Excel, I like to rationalise the many different ways companies should be investing in social business by breaking down some of the different activities an enterprise can utilise social for, department by department, and how it can help affect the bottom line.

This is not meant to be an exhaustive, complete list but a sampling to help you see the potential for social business RoI.

How does social business help increase revenues?

While there are many ways to generate revenue from social media, the easiest way to see its impact on business is to look at how it can be used by sales and marketing departments.


It’s no wonder that most investment in social media goes through marketing. Marketing, after all, is about being where your audience is.

Social media is allowing companies to deepen relationships with current customers, as well as helping them expand to generate new ones through social media engagement. The one-to-many factor of social media – especially for influencers with large communities – means that word of mouth has the potential to spread the message about a brand virally.

A brand can also tap into its advocates, and even its employees, through advocacy programmes to further extend their reach in social networking communities.

Because social is a digital media, web analytics will provide full data as to which social media communities are driving the most traffic, leads and/or conversions to your website.

As most companies find out, social media is now one touch among many that result in new business, as social becomes an integral part of marketing’s infrastructure. It is also, in many ways, easier to calculate the RoI of social compared to traditional means of marketing, because the digital format lends itself to easy analysis.


There is currently significant hype around the term social selling, which might confuse some, for hasn’t sales always been a social exercise?

Indeed, it has, but online social networking allows salespeople to scale their social activities and also become a source of news for their client network. As customers – and prospective customers – engage with that content, platforms have emerged to allow companies to measure how that is affecting both lead generation and closing deals in the pipeline.

Through social media, salespeople become a more trusted resource to their clients, and studies have already showed that social sellers are outselling those salespeople who are still late to the game.

How does social business help decrease expenses?

We discussed how social amplifies revenue generation for companies. But how can it simultaneously be used to reduce expenses?


Many companies still have legacy marketing budgets that have been carbon copied every year, or remain static despite the dynamic world we live in.

With more people spending more time on social media, you can imagine how shifting that budget to a media where advertising, as one example, can be personalized and measured in a way that is impossible in traditional media could be beneficial, and you begin to see how social advertising (also called Paid Social) might be more effective and cheaper than traditional means.

Another common area in which companies reduce expenses is in their SEO budgets. Any social media marketing programme relies on content creation that is then fed into blogs, as well as social networking sites. This content helps companies get seen, not only the traditional search engines but also the new search engines, ie, the social networks themselves.

Similar to reducing traditional ad expenses with Paid Social, therefore, companies are finding that they can also reduce their SEO expenses as their social presence becomes more robust.

A survey of businesses indicated that more than half of smaller businesses and more than a third of larger businesses agree that social media helps reduce marketing expenses.

Customer service

Consumer-facing brands are investing more in social media-based customer service to support their customers on every platform.

Once a public announcement of an issue or a fix is posted on a social network, that information is there for all to see. In other words, for other people having the same issue, a quick glimpse at the customer support Twitter timeline of the brand in question might provide them the answer without having to reach out through traditional support channels.

Furthermore, being in control of posting a 140-character message is estimated to take much less time than a phone call, which is not bounded by time but by conversations. McKinsey & Company provided a detailed study and estimated that “handling an inbound telephone call typically costs a company $6 to $8; an interaction using social media, less than $1”.

Human resources

Social recruiting is allowing companies to bypass traditional recruiters and headhunters, and approach potential job candidates directly on social networks. Companies are also leveraging their employee’s presence on social networks to help spread the word about job openings. These activities can lead to a decrease in recruitment expenses for HR departments – some as great as 50pc.

What about the intangibles?

Outside of increasing sales and/or decreasing expenses, there is another huge area where investing in social business has huge benefits for your company: the intangible benefits. Some of these are easier to measure than others, but they should also be introduced as additional RoI when investing your company in social business.


Brand equity is something that’s very important for any large brand, but it is as difficult to measure in the age of social media as it was before the advent of social. Or is it?

Social listening tools are providing us a way of measuring brand mentions/awareness, share of voice, and sentiment analysis, which have provided marketers new KPIs to help them measure this intangible benefit.

Public relations

As with brand equity, how does one go about measuring corporate goodwill, other than as a balance sheet statement item that doesn’t necessarily correlate to business value?

Once again, social listening tools can provide unique insight as to what a company’s relationship with the public looks like, and it also provides a powerful channel for media relations and public affairs to perform outreach and measure the efforts of their activities.

Research and development

We have discussed the concept of social listening in relation to PR and marketing, but the same concept can be applied in a much broader context, as social media allows you to listen to what the public thinks about anything and everything.

Big social data has helped in predicting automotive equipment failure to tracking the real-time progress of global epidemics, and even been utilised to predict economic trends. We also know that law enforcement agencies worldwide, some more than others, have become very adept in utilising social listening.

If social listening can be used for these seemingly niche applications, why can’t they be used to a greater extent by any company today?

In today’s world of truly big social data, the potential for social listening becomes greater as more people have public social conversations. One of the applications of utilising data derived from social listening can be to understand market trends that you can then input into your own product roadmap. If you think about it, social media is the ultimate focus group.

Smart companies are utilising that to their advantage, minimising the risk of developing new products and finding new ideas for other new products.

Companies can struggle to calculate the exact RoI of their social media programme, especially when it can be as widespread as an enterprise-wide initiative. But, as you can see, the RoI of social business is only limited by what corporate objectives you have for your social media programme.

Neal Schaffer is an IMI associate, and will be a faculty member on the upcoming MSc in Digital Business, starting 18 May.

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