The simple answer to the perennial question of social media ROI is, like traditional marketing, to tie social media activities to sales. The amount of sales resulting directly from social media activities, which can be tracked via referral indicators like traffic sources and redemption codes, can give an idea of how well your social media marketing efforts are faring. This method of calculating social media ROI, however, merely represents the minimum ROI obtained from your social media activities, because there are other numerous indirect benefits that result from cultivating a thriving community and engaging customers on a regular basis (e.g. sales resulting from non-attributable word-of-mouth marketing, customer service cost reduction, customer feedback acquisition cost reduction, etc.).

Fixation on the ROI of social media (as with any other business endeavor) is important; nobody likes wasting time and/or money. The important thing to determine from the outset is the core objective of any social media activity, which would then help determine the relevant metric to track to produce the minimum ROI. If management wants to explore the potential of using social media to automate or scale customer service, the relevant metric to track is cost reduction in customer service expenses, not sales. Tracking sales may produce a positive ROI, but that number would not confirm or debunk the effectiveness of using social media in aiding customer service.

The whole purpose of tracking ROI is to determine the amount of value a specific activity creates in order to give a picture of the likely future returns, should the business decide to invest further in said activity. Unfortunately, the uses of social media are so broad and encompass a wide range of applications (e.g. broadcast-style marketing, customer service, product development, etc.) that are essentially different activities altogether. Lumping all social media activities together as one activity to obtain one average, mashed-up ROI is unlikely to be useful in guiding future decisions, because it involves too many variables. Track your social media activities separately, and it will quickly become clear which application of social media is most fruitful for your business.