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Laughing to the Bank: ROI in Social Media for Dummies

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Above image: social media reports in Google Analytics.

As a digital marketing strategist it confounds me that even as 2014 is in full swing, marketers, publishers and startups are sadly (still) debating the issue of return on investment (ROI) from social media.

Yet none of this is new and for the sophisticated marketer social measurement is a mature part of their programs.

There have been a flurry of articles written on the topic recently driven in large part by an E-commerce Holiday Trends and Benchmarks study from Custora declaring search and email marketing as clear winners over social media when it comes to driving Ecommerce purchases. What is particularly surprising is the marketers in this case ignore the very basics of the sales process and the role social media plays in guiding customers through the funnel.

The only way to reach this flawed conclusion – there is no ROI in social media – is to completely ignore how customers enter and flow through the sales funnel, and focus solely on the point of sale.

The Sales Funnel

This image from the Bizo marketing blog shows how the consumer exists in multiple stages of the funnel concurrently. It also shows how different marketing channels are used at each stage of the funnel and how these channels sometimes overlap multiple stages of the funnel.


The sales process is incomplete however, because it ignores your relationship with the customer after the sale is made – where customer service and retention comes into play, leading to repeat sales and contributing to the lifetime value of a customer. Generally speaking, the cost to acquire a first-time customer tends to be high and may not be a break-even proposition for a business, therefore customer service and retention are important and allow you to spread the cost per acquisition over the lifetime value of a repeat customer. We’ll discuss this further, below.

Metrics for Each Stage of the Funnel

Every marketer should understand the purpose of each stage of the funnel and how to guide the consumer from one stage to the next. Let’s start with a more detailed look at consumer behavior and intent at various stages of the sales funnel, how that informs our objectives, and the role social media plays at each stage.

Stage 1: Top of the funnel – At the top of the funnel, the consumer is just discovering your brand or product. This is the consumer’s first exposure to you, assuming no prior awareness of the brand product. You can expect the consumer to be somewhat skeptical and perhaps cynical and nothing will prove a bigger turn off than a purely marketing-oriented approach at this stage.

Your goal here should be to make sure your brand is discoverable by your target audience and to enable maximum exposure for the brand through frictionless syndication across platforms where your target audience participates and engages with each other. You should focus strictly on engaging with the users on their terms, on their preferred platforms, and participate in their conversations. Since the users are currently unaware of your brand, the best way to enable discovery is to create content that resonates with the users by providing entertainment value or utility that naturally lends itself to sharing and engagement. Tools such as Google Keyword Planner and Google Trends along with Facebook’s advertising platform are great for conducting market research to get a better idea of who your customers are, how best to approach them, and where to approach them. Ideally your approach will accomplish all of the above while providing context for your brand and creating lasting brand awareness and recall. Do not make the mistake of focusing on volume of exposure over relevancy of exposure.

Key metrics for your brand: exposure and awareness (views and recall), associations (likes, follows, bookmarks, subscriptions).

Stage 2: Middle of the funnel – At the middle of the funnel, the consumer is aware of your brand and the products you offer and is doing further research on his wants and needs and how your brand and product may be able to fulfill them. At this stage the consumer is looking for information and possibly comparing it with known competitors. Social proof and a compelling value proposition are vital here.

Building on brand awareness and association from the previous stage, now your goal is to add depth to your relationship with your prospects by directly answering the wants/needs question and providing solutions to his problems; showcasing how you are in the best position to do so (this is your differentiated value proposition). Educating the consumers through more in-depth content such as e-books, white papers, how-to and demonstration videos is essential here, with a specific focus on utility and problem solving over entertainment value. A deeper relationship here enables you to go from participating in customers’ conversations to leading conversations yourself (possibly centered around your brand or product). You can also begin incentivizing customers to go from engaging with you on a third-party platform to your hub where you can assert more control over their experience and guide them further down the funnel.

Ket metrics for your brand: authority and credibility (leadership), click-throughs (visits, page views, time spent on site), engagement (shares, retweets, comments, inbound links).

Stage 3: Bottom of the funnel – At the bottom of the funnel, the consumer has a good understanding of his needs, your differentiated value proposition, and has done the necessary research and come to a decision whether or not to purchase your product. This is the stage where a you generate a lead, convert a sale, or both.

At this point you are not only already meeting the customers on their terms and on platforms where they exist on a daily basis, but you are also driving them back to your hub through exclusive offers and more in-depth free educational resources. By handholding your customers through this process slowly and selflessly you’ve managed to go from a brand they were unaware of, to an authoritative brand that they have a somewhat personal relationship with and developed a degree of trust with due to authentic two-way engagement and value creation. You can now capitalize on your investment in your prospective customer base and use a call to actions that will result in lead generation and sales conversion. You are in a position to leverage your relationship to more directly demonstrate your ability to help them long-term and pitch your product or service without seeming intrusive or your advances seeming unwarranted.

Key metrics for your brand: leads generated (forms filled), sales converted.

Stage 4: Post conversion – At this stage the consumer has already purchased the product, is using it, and based on his experience will not only make the decision about becoming a loyal customer but will also whether or not to become a part of your sales loop, generating social proof through leaving comments and reviews and evangelizing for you through word of mouth.

Your goals are now focused on maintaining the relationship you built through the initial two stages of the funnel, making sure your customers are happy, engaged, and helping propagate your brand through reviews, sharing, and word of mouth activities. This takes us back to stage 1, now with an army of social-media enabled influencers and brand ambassadors.

Key metrics for your brand: evangelism (word of mouth marketing), acquisition (new customers), loyalty (repeat sales).

By understanding consumer intent and behavior at each stage of the funnel you can set the appropriate goals (beyond leading the customer further down the funnel), choose the right tools, and use the correct metrics for success. These three things will ultimately enable you to correctly calculate the true return on investment on a stage-by-stage basis. At this point it should be clear that the ROI for each stage is different, and specifically not based on the bottom of the funnel goal of lead generation and sales conversion.

I’ve read a lot of people make the spurious claim that ‘the sales funnel is dead’, but these are just inflammatory verbal gymnastics that are really getting to the point I made above – the sales funnel is better seen as a sales loop, with the post-conversion stage (4) feeding back into stage 1. This is where your current customers start helping newcomers discover your brand. This also gets to the heart of why it is important to consider the lifetime value of a customer, taking into account the customer’s value not just for the initial sale but also for repeat sales and as an engine for perpetuating brand discovery and affinity.

The Role of Social Media in the Sales Funnel (Loop)

Marketers claiming there is no return on investment in social media make three rudimentary mistakes, rooted in their misunderstanding of the funnel or loop. These marketers:

  1. Do not understand the role social media plays in the sales funnel,
  2. Therefore they do not set the correct goals to be achieved through social media,
  3. which leads them to associate incorrect metrics for success for social media

Instead they only look at bottom of funnel objectives to measure return on investment, thereby concluding that social media, independently of any multi-channel marketing strategy, doesn’t directly lead to sales as effectively as other channels. Social media metrics that seem purely qualitative can be quantified if you have the right goals and metrics for success and view them in the context of how they lead a prospective customer from stage 1 to stage 4 and back to stage 1. Let’s take a look at some of these metrics.

Social media association – Opt-in association by users on social media (Facebook likes, Twitter follows, etc.) results in a highly qualified long-term audience that you can market to at will, as opposed to paid search or advertising campaigns which have no long-term exposure once you run through your budget.

Social media engagement – Engagement on social media sites results in highly targeted exposure and brand awareness, increase in brand recall, and when used effectively in paid campaigns can drive down cost per impression, cost per click, and cost per acquisition through the mechanisms such as social lift and earned media. Furthermore, engagement through social media sites results in click through referral traffic to your landing pages which itself can convert.

Social media evangelism – As discussed above, relationships built through social media are vital for word of mouth marketing and for perpetuating the sales loop and organically driving awareness to new customers in a consumer-to-consumer conversation that is much more effective than business-to-consumer.

Social media and social proof – Social proof is arguably the most important factor for the first two stages of the sales funnel. Metrics such as authority, credibility, and trust are vital vehicles for moving prospective customers from stages of discovery and awareness to commitment and conversion.

Social media and search signals – even after all of the above, if you’re unconvinced about the incredible value social media can provide to your business objectives, here are a few ways how social media augments a purely search based acquisition strategy (see a previous post for a visual cycle of this).

  1. Social media presence, brand mentions, and brand influence are all signals for search authority
  2. Content shared on social media platforms is indexed by search engines and leads to more opportunities for discovery
  3. Social media drives organic link acquisition which reinforces a search acquisition strategy

Whether you are a publisher, startup, or a Fortune 500 company, it is important to understand the value of social media by understanding the role it plays in each stage of your customer acquisition strategy. Furthermore, it is important to understand the goal of social media and the correct social media metrics for success to achieve a positive return on investment from social media. The next time your marketing department tells you there’s no ROI in social media, think long and hard about the kind of return you’re getting from your marketing department.


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