10 years on, we’re still getting Facebook ROI all wrong

As Facebook celebrates its 10th anniversary with record advertising revenue and more than a billion users, most marketing types admit they’re still not sure how to quantify the financial return on investment on Mark Zuckerberg’s juggernaut. And yet brands continue to shift more of their media budgets into social media, making Facebook and other channels a permanent piece of their marketing mix.

A recent survey highlighted this irony. The results of The CMO Survey conducted last year show that the percentage of people using financial metrics for social media ROI dropped from 17% to nine percent over three years – at a time when social media budgets exploded. Instead, companies are relying mostly on voice metrics — such as brand awareness, sentiment and engagement — instead of numbers that directly connect marketing spend and revenue.

While voice metrics are good leading indicators, they are not the full measure of return on investment. At a time when two-thirds of people in marketing report they are facing more pressure to demonstrate ROI to the C-suite, brands have to prove that social media leads to near- and long-term sales. It’s not enough to just feel warm and fuzzy about followers, likes or even more sophisticated progress indicators.

No more free pass for Facebook accountability

During most of Facebook’s relatively short history, companies have considered it a brand-building platform that required participation just to be in the game. That meant it was more important to establish a presence and strategy than prove ROI.

But over the past few years, Facebook has turned into a legitimate advertising platform with a global reach. More than 80 percent of companies now use Facebook as a marketing channel, and three-quarters spend money on Facebook ads, according to an Ad Age survey. More than half expect their social media budgets to increase over the next year.

The shift is a result of Facebook itself placing a higher value on helping companies meet their business goals rather than simply chasing fans and likes. It’s no coincidence that Facebook has moved from an experimental tactic to a mature part of the marketing mix over the past two years as the social media site turned into a more effective advertising platform. Especially with the highly successful launch of mobile ads, Facebook has become a destination for advertisers.

So at a time when measurement of marketing is on the rise, it seems odd that so few are using financial metrics to evaluate their return on social media. If you look at Facebook’s milestones in its early days – such as the introduction of the share button in 2006, brand pages in 2007 and the ubiquitous “like” in 2009 – you can understand why voice metrics were widely used. Engagement was an easy early win. But as Facebook focuses on becoming a platform that drives revenue, quantifying its return in terms of revenue should become more – not less – important.

Turning “Likes” into dollars and cents

Until Facebook became an advertising venue, the relatively small amount of money being spent in the channel didn’t show up in marketing mix models. But with US$8-billion in revenue in 2013, Facebook has become an integral part of the marketing plan for almost every brand. As a result, it should now be evaluated the same way as other media— with data-driven attribution in terms of sales and ROI in the right kind of marketing mix model.

The problem is that too many people execute campaigns and measure results in silos, meaning they can’t measure ROI in the context of all their online and offline marketing activities. There’s also a lack of agreement in the industry about the best way to do attribution, and not all companies in the space know how to collect the right data and use the right analytics to do accurate on- and off-line attribution in a true, multi-channel marketing mix model.

The good news is that advances in marketing mix optimisation have made it possible to quantify the long-term value of Facebook for the brand as well as the short-term sales volume it generates. Using a new approach called agent-based modeling — which simulates how consumer buying behaviour changes in response to all types of marketing tactics – brands can objectively quantify how revenue is affected by the level of investment on Facebook.

Agent-based modeling combines data about consumers with information about the reach and frequency of Facebook marketing to deliver highly accurate, data-driven attribution for each marketing activity in the context of all of a company’s overall marketing plan. The approach also provides the ability to understand the set of marketing activities that drive results with each consumer group.

Social media voice metrics can be valuable in measuring progress, but we can’t stop there. Using modern marketing mix methods, brands can go beyond intermediate metrics and evaluate each activity in terms of actual dollars and cents.