Results tagged “social media Investment”

In my entry, "How Much Should You Invest in Social Media?" I addressed under what circumstances an organization should and should not invest in social media.  A response I received via email asked, "What does, 'You have a quantitative, data-driven understanding of the internal mechanisms/business processes of the part of your business you wish to improve (ie. marketing, product development, customer service)' mean?"

Here is the relevant part of my response.

Let me try to explain with an example (and it will be very contrived, but I think illustrative nonetheless)

Ignoring the debate about whether social media is/can be a direct marketing channel for a moment, here is a straight-forward marketing example.

Let's say you are the owner of a company that sells yard services.  You want to get the word out and run a promotion for a leaf cleanup package for the fall.  Your team will go to a home, rake all of the leaves, bag them, and cart them away.  Traditionally, you have used direct mail pieces to get out the word.  You use a combination of customer/prospect database (you have individual's name, address, and phone number, and email address) to send out letters with a flyer to individuals.   You also send out coupons for first time customers via those value-pack coupon envelopes.  (If you are not familiar - Every few months we get an envelope in the mail from a direct marketing services company filled with coupons and advertisements for local businesses from plumbers, to mattresses, to lawn care, to snow removal, siding for your house, etc.)

One of your summer employees who just came back from his first year at college suggests that you should really think about using Facebook and maybe Twitter though that's for old people (I believe Twitter's dominant user group is aged 28-34).  You can reach a lot of people that way.  It's really cool, and because it's free there is really no good reason not to do it.

You stop and think about it.

Price for Service (Per Person)                    $250.00

Cost to Deliver Service (Per Person)        $150.00

Profit from Serrvice (Per Person)               $100.00

You hate writing marketing collateral so you always get someone else to do it for you.

You are working with a full-service print shop to print, stuff, and mail your piece.

Here are the costs associated with your traditional direct marketing approach (maybe next time I'll put it in a spreadsheet).

Item	Setup Fee	Run Rate	Total	Duration (days)
Design
Write Letter	$50.00	$0.00	$50.00	0.5
Flyer Design	$500.00	$0.00	$500.00	1
Design Subtotal			$550.00	1.5
Storage and Delivery (Mail)
Printed envelope	$0.00	$0.02	$20.00	3
Print material and stuff	$200.00	$0.08	$280.00	2
Postage	$0.00	$0.27	$270.00	0
Storage and Delivery Subtotal			$570.00	5
Direct Mail Campaign Grand Total			$1,120.00	6.5

E-mail Direct Marketing has a similar set of costs.  The primary difference the cost and speed of storage and delivery.  So it might look like this:

Item                                                      Setup Fee      Run Rate        Total              Duration (days)

Design

Write Copy                                              $50.00              $0.00       $50.00                                     0.5

Landing Page Design                        $500.00              $0.00     $500.00                                     1.0

Design Subtotal                                  $550.00                                                                                 1.5

Direct Marketing - Email Storage and Delivery

Printed envelope                                    $0.00               $0.00         $0.00                                   0.0

Print material and stuff                           $0.00              $0.00         $0.00                                    0.0

Delivery Fee                                            $30.00            $0.00       $30.00                                    0.0

Upload & Send                                       $0.00               $0.00        $0.00                                     0.25

Storage and Delivery Subtotal                                                       $30.00                                   0.25

Direct Marketing - E-Mail Campaign Grand Total                   $580.00                                  1.75

Ok.  So as a direct market you also know that you can expect a conversion rate of X% which tells you how much revenue you can expect from this campaign.  So if 10% of your recipients respond that's 100 orders.

So

Revenue                 $250 * 100 = $25,000

Cost to Deliver Service         $150 * 100 = $15,000

Cost of Direct Marketing - Print Campaign $1,120

Total Cost                 $16,120

ROI for Print Direct Mail Campaign = ($25,000 = $16,120)/$16,120 = 55%

(Gee I hope none of my math is wrong.)

In a nutshell for our hypothetical lawn service above, there would be no point in pursuing social media with an eye towards figuring out if it did anything better for you if you don't have any idea as to your non-social media activities and associated costs.  If you do go forward and social media drives an ROI of 15% (making it up), fine.  Is that better or worse than what you were doing before?  Unless you have done something like what I outlined above you will have no clue if 15% is good, bad, or indifferent.

I also argued that, contrary to what some may say, social media is not free.  My explanation as to why I will save for part II.