ROI Is Not Just Money Earned But Money Saved
Aug 11, 2015, by Corey Padveen
When we think of return on investment (ROI) it is generally thought of as the money made from an investment. For marketers—particularly social marketers—ROI is not always black and white. Just look at any content marketing tool. How exactly does one determine the ROI from investment in that particular tool? How does this measurement change we use multiple tools and social channels?
In order to answer these questions, we need to start thinking about ROI not only as the money that an investment recoups, but also as the money that is saved from this investment—both in the short and long run.
Traditional Notions of ROI
In its simplest mathematical form, ROI is described as your total cost subtracted from your total revenue, then that difference divided by your total cost. Of course, the higher the return, the better.
source: Buffer App
The focal point here is the bottom line. Any business wants to ensure that the investments made are reaping benefits. There are inevitable sunk costs (think: computers and office space) but once your business is up and running, new investments need to be looked at and measured according to the value that will be generated as a result of spending.
Yet there are several difficulties when it comes to social media marketing. To begin, too many marketers forget their time is money, and time (in many cases) is the greatest investment that can be made when it comes to developing a successful social media presence. Second, much of what is done in social media is not directly tied to sales and revenue.
How can we measure, for example, the ROI from something like a social care (customer service) on social media?
A New Spin on an Old Term
The idea of a return on investment is not a new. The core concept has been around since the dawn of trade and commerce. But when we think of things like new media, we rarely think in terms of money saved or operational improvement. Instead, we desperately try to find a direct connection between investment and revenue.
Let’s take a look at two different ways we can start thinking about ROI.
First, let’s think about money saved. Almost always, an investment is going to mean an initial monetary cost. For marketers, that might be something like a new tool or technology, or even a new hire to help with a workload. Whatever the case, there is going to be some spending. It might be hard for some of us to do, but in order to measure the return on this cost, it is important to look into the future.
Consider a new hire.
Say you’ve been outsourcing a portion of your social media management and paying a monthly fee. That fee seems manageable but, as noted above, we too often forget about our own time. Collecting content, sharing it with an outside firm, reviewing proposed editorial calendars every week or month (and everything else that comes with dealing with an outside firm) eats into our time. In the long run, having a team member who is solely responsible for the growth of the brand on social media—and lives and breathes that brand—is going to be a monetary investment that pays off.
While it might be beneficial to hold a firm or consultancy on retainer to help with certain specialized projects, the money saved by not spending additional hours on top of the monthly fee will be well worth it.
The second way of looking at your ROI is through the lens of improving operational efficiency. Without getting into the nitty-gritty details of operations—when an investment is made that can improve things like bottleneck capacity (which ultimately increases output) or facilitate interdepartmental communication (thereby moving projects along faster) the ROI is not something calculable, but experienced.
Of course, you might need to get a little creative with your measurement techniques (and explain how exactly you will be defining ROI) but there will be a clear return.
This is by no means an attempt to negate the importance of understanding monetary gain from investment. Instead, this approach to ROI is meant to critically examine additional things to consider when calculating return. The more diverse our definition, the greater our ultimate return on an investment will be.
Take some time and broaden your definition of ROI. Figure out what exactly you consider to be a 'value add,' then determine how you are going to measure that add. This second step is perhaps the most important. Ask yourself, "How can I know if I'm generating a return if I'm not sure what I'm supposed to be measuring?"
You might be surprised to find that some of your existing investments are performing much better than you originally calculated when using a more conservation definition of ROI.