At Buyapowa we talk to a lot of companies about their social media activities and, as part of that, we typically ask a couple of simple questions, such as 'what are you trying to achieve with social?', and 'what goals do you have for your business and have you thought about how social can help achieve those?'
Most people can give us some kind of answer to those questions, even if it is 'we have never thought about social in that context'. But there is one question we ask that seems to stump most people. It is very simply: ‘Do you know how much money you spent on social media last year?’
It seems to us that many companies just have no idea what they are spending on social media each year.
Why is this important? Well, we all know that the calculation for Return on Investment (‘ROI’) is:
(Revenue from investment – Costs of that investment) / Costs of that investment
If you can’t tell us your 'cost of social media' last year, you have no hope of telling us what your ROI from social media was! So what hope do you have of optimising the return on your social media spend?
With all the different budgeting and recording tools available to companies, even our 'old friend' Excel is pretty good at recording costs, we might be astonished to hear this.
But in trying to understand why it is so hard to answer this question, if we consider all the expenses you might be incurring as part of 'social media', then it is not so difficult to understand why. Here are some of our thoughts as to why companies find it so difficult to calculate what they spend on social:
(1) Different departments and different budgets
If only it were as simple as looking for a line in the marketing budget titled ‘Social Media’. In fact, closely linked to the debate as to where responsibility for social media should lie within a company, you may find that many different departments such as Marketing, PR and Internal Communications, HR, Customer Service and Product are all spending time and money on social media. That, in itself, should not surprise you, given that Social Media can touch almost every area of a business.
Often the costs may be hidden under other categories where the expense can be ‘dual purpose’, such as articles written or videos produced that are made for the website but are expected to be propagated via social media. In some situations, it may not be clear how to label the costs, for example if your PR agency spends time from your monthly retainer monitoring social media is that properly a ‘PR expense’ or a ‘Social Media expense’?
In other cases, social media expenses may be being picked up by budget holders under other expense categories or using ‘slush funds’, for example where they try to get some validation for a social media strategy without having had official budget sign off.
(2) Time is money
Clearly one of the main costs of Social Media is always going to be time. In other words, the time your employees spend monitoring social media posts, checking social media reporting tools, amending sentiment analysis reports, responding to tweets and posts, reweeting, writing reports about social media and the inevitable meetings to review social media activity.
One approach to calculate your costs would be to work out the total annual cost of salary, bonuses, employers national insurance and pension contributions, and perhaps the cost of work space, work station and other costs that can be amortised over the year for the worker concerned. Then divide by the number of working hours over a year. As there were 253 working days in 2013 (1), and if we assume 7.5 working hours a day, then we have 1,898 hours which we can use to divide the total employee costs by to reach the ‘cost’ of each hour worked on social media. Then multiply by the number of hours spent on social media.
An alternative could be to calculate this on an ‘opportunity cost’ basis if you know the ‘average value added per hour per employee’. On this basis you could calculate the cost as the value lost by those employees not undertaking other value adding tasks.
But in either case you would need to know exactly who is spending time on social media and how much. This is not an easy task given the ability of social media to pervade all parts of the business (see above). Also you would need to add up lots of small increments, such as the time spent by management reviewing social media presentations and reports. All those ‘15 minutes per week’ add up over the course of a year!
'Social media tools' is perhaps one of the easiest areas for which to ascertain costs. While there are free options like Hootsuite, Social Mention and Google Alerts, larger companies tend to use Enterprise level tools like Radian 6, Brandwatch, Sysomos etc. where the costs can reach tens of thousands of Pounds.
Again you need to consider the proliferation of tools across different business units. Some departments may use tools that include some level of social media reporting, such as PR focused tools. So you would need to make sure you capture all those costs not forgetting any set up, training and consultancy costs as well as the annual renewal fees.
While you could ‘do social media’ entirely in-house, the proliferation of Social Media Agencies and Social Media Departments within larger agencies suggests that most large companies do look to agencies to help with social media.
The costs could be for devising a Social Media Strategy, coming up with Creative Ideas like 'getting people to douse themselves with ice cold water', or simply to decide the tone of your social media presence and train your staff in how to use Social Media.
You could perhaps have paid an agency to ‘map out’ the Key Influencers in your market and devise a reach out strategy to those people. You may also pay for a Social Media agency to ‘man the lines’ out of hours and respond to tweets while you are safely tucked up in bed.
We certainly hope you are no longer paying agencies to create a social audience for you by incentivising people to ‘like’ you on Facebook with like-gated competitions.
Oh, of course if your agency arranged a Flash Mob to appear at Waterloo Station in the hope of creating a viral ripple effect, you will be paying for all those out of work actors and students to ‘suddenly appear as if by magic’.
Whatever, these accumulated agency costs can be quite substantial over the course of a year.
(5) Paid Social Media
Hopefully you are tracking your expenditure on Facebook, Linked’in and Twitter Ads, Soon you might be spending on Pinterest ads and, in the near future, maybe even Vine, Instagram and Snapchat. While some of these ads may be purely acquisition based, sending clickers to a checkout page, others may be be just directing users to your Facebook Page. In some cases the expenditure will probably overlap, where your objective is both to sell now and increase your audience for later sales.
You may also be using traditional online (Google Ads or banners) or offline (Billboards, magazines, TV and Radio) ads to boost your social objectives, even if only tangentally. If your TV ads mention your Facebook Page, should you include some of the costs for the ad in your Social Media calculation, or is it a free rider?
(6) Prizes and gifts
Everybody loves a contest or a chance to win something. For that reason gamification has become a key element in many successful web strategies. But if you are offering incentives, don’t forget to include the costs of those holidays or complementary free samples you offer.
This is a tricky area. A successful social media strategy will rely to a large extent on good content, whether articles, videos, games, quizzes etc. All of these cost money to create, whether you are doing it in-house or using an external agency.
There is a question around categorisation. For example, should a blog article be considered part of the website costs or as a social media cost?
Also much of this content may not have been created ‘solely’ for social media. However, many content pieces would not have been considered profitable without the expected social media sharing and commenting it is expected to generate. Should all or part of this content be considered a social media cost?
(8) Social Media Policies and Brand Guidelines
You may also incur costs in managing the social media activities of your own staff, creating and disseminating Social Media Guidelines. This will likely have incurred legal costs as well as time in the HR department in monitoring employee social media use.
You may also have Brand Manager who will want to monitor social media communications.
So in Conclusion…
The above shows that it is not so easy to answer the question ‘How much did you spend on social media last year?’ We think that if you could capture and correctly apportion all the above costs, and we are sure that we have forgotten a few, then you might be surprised at the total.
In our ‘The Three Stages of Social Maturity’ report earlier this year we quoted the TCS Global Trends report that the average large company was spending US$19m a year on social media. With spending on that scale wouldn’t you want to see some Return on Investment? In other words, to actually see social driving sales. If you would like to know more about how we think we can achieve this for you then please get in touch.
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