Using Relationship Marketing Metrics to Calculate Social Media Marketing ROI

Mike Hanbery - 8.15.2012 11:30 AM

What is relationship marketing? Dr. Philip Kotler offers this definition:

Increasingly, a key goal of marketing is to develop deep, enduring relationships with all people or organizations that could directly or indirectly affect the success of the firm’s marketing activities. Relationship marketing has the aim of building mutually satisfying long-term relationships with key parties—customers, suppliers, distributors and other marketing partners—in order to earn and retain their business.

This definition was written in 2006. The true advent of social media for business started to occur in 2008. Successful social media presences are built upon the same goals and behaviors.
A few of these behaviors are:

• Show up.
• Add value; don’t “sell.” Establish yourself as a positive contributor to the community.
• Work to become a resource people seek out; don’t harbor “tit for tat” expectations.

Metrics that may be applied to relationship marketing Return On Investment (ROI) usually include:

• Opportunities – To establish oneself or one’s company as a leader in a particular area, such as through speaking engagements and appearances in mainstream media.
• Client Retention – Remaining top of mind saves businesses the cost of re-acquiring customers and guards against churn (loss of an existing account).
• Brand Development – Establishing the identity, purpose and values of a company or person.
• Referrals
• Leads

With proper tracking, a Cost Per Lead (CPL) ROI calculation seems easily measured: If a company spends $1,000 on an annual Chamber of Commerce membership and attributes 10 leads to that membership in a year’s time, the CPL is $100. However, there is an element of “stickiness” and longevity that must be introduced to any marketing ROI calculation.

For example, businesses should expect a very low rate of return on a single placement of a TV commercial or print advertisement. A sustained effort in which the advertisement recurs over a period of time requires a larger investment but will yield greater return.

Relationship marketing is no different. Quality referrals stem from an individual’s confidence that providing them will elevate her own standing. Within any social network, such as a Chamber of Commerce, referrals are unlikely to come on the first day or, for that matter, in the first 90 days—and fees paid without engagement is money and opportunity lost. Over time, active, positive participation fosters relationships that yield referrals and leads. This means the CPL for a Chamber of Commerce may be relatively high in year one of membership but should decrease over time provided active, positive engagement remains constant.

In essence and especially for small businesses, social media marketing is an extension of traditional business networking. It is based on and powered by people coming together to interact. The Internet component—Facebook, LinkedIn, Twitter, etc.—brings people together in the same way while eschewing the limitations of geography and chronology. Traditional networking events take place at a designated time in a specific location. Online networking can be conducted among people anywhere in the world and the conversations can continue forever. (Small businesses should take care to see social media as an extension—not a replacement—for eye to eye, flesh to flesh networking. No marketing vehicle will ever be more powerful or authentic than direct personal contact.) By taking the same outlook on Internet business networking as traditional business networking, social media for business becomes much easier to understand and ROI measurements become clearer.

Nothing exists in a vacuum. Just as the upside of a single TV spot is limited, so will be returns on marketing investment if only a single channel is employed. Traditional and online networks are more effective when supported by advertising, experiential marketing, web design and/or other forms of marketing. Similarly, establishing specific goals and forming hypotheses at or prior to the outset of any marketing initiative expedites conclusions. Identifying the type of data against which ROI will be measured renders that data much easier to collect and interpret.

How to Use This Information
Measuring social media marketing ROI continues to be a challenge for businesses of all sizes. Meanwhile, these same businesses decide on an ongoing basis their levels of investment in Chambers of Commerce, professional associations, leads groups and other networking avenues. For companies who have decided their goal for social media marketing is to develop and strengthen relationships, it makes sense to apply similar measurements to social media marketing and relationship marketing—as one is simply an extension of the other.

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