The Return of Investment of Social Technologies

Over the course of all the posts I have published on this blog I have discussed the many reasons why social media and enterprise 2.0 is a viable tactic in the business world when it comes to building a customer base and marketing products. What I have yet to discuss is the financial return on such an investment. The importance of a financial incentive for implementing enterprise 2.0 and included social technologies is so businesses seek out these methods and stick with them. Return of Interest is calculated to determine the total profit returned from an implementation, it can be found from the following equation:

return on investment (%) = (Net profit / Investment) × 100

As an example, say a company earns a Net profit (Gain-Cost) from their marketing strategy to a total of $100,000. For the example lets also say they had an Investment of $50,000 and that the point from implementation to evaluation is 6 months. If we calculate the ROI as below:

ROI = (100,000 / 50,000) x 100

ROI = 200%

In this example the company had a return of 200% of their investment within the 6 months of their marketing strategy. This is a successful ROI as the company doubled their investment. Many factors have to be taken into account when calculating the ROI, every cost and profit needs to be weighed in for evaluation otherwise the company could get a untrue ROI.

Onto a real world case study, I am sure many of you may have seen the youtube videos 'Will it Blend', if you haven't then follow this link. What you may not know is that the series is funded by BlendTec who sell blenders. Upon uploading videos of their blenders destroying just about anything to social media website Youtube they noticed a significant jump in sales. Blendtec reported a 700% increase in sales soon after their Youtube channel launched. Now as Blendtec has not published their finances online we can only exaggerate their ROI. As their sales went up 700% from publishing a few 2 minute videos online the ROI must have been at an immense percent.

An Estimation of their ROI:

Before sales BlendTec was your high-end blending company maybe selling 10,000 units a month in the US. Each unit would have been sold to wholesalers at around $80. This gives them an annual sales profit for their medium sized company $9,600,000. Their costs (still exaggerated for the exercise) may have been $50 per unit to manufacture, $300,000 per year for a small marketing team, $400,000 for a small accounting team, $1,000,000 for factory employees and $500,000 for office employees. This leaves them with $1,400,000 left to spend on uncalculated expenses.

Now if the company invested $200,000 a year on their high-quality YouTube channel their ROI would be as follows:

Cost of Investment = $200,000
Expected Sales Profit (after manufacturing cost) = $3,600,000

Actual Sales Profit (after manufacturing cost) = $25,200,000

Profit Added to company = $21,600,000

Net Profit of investment = $21,400,000

ROI = (21,400,000/ 200,000) x 100

ROI = 10,700%

While this ROI is most likely not exact I would not doubt it is far from the truth of BlendTec's successful Youtube campaign. In conclusion you can see just how immensely profitable a social media presence could add to a company, albeit such cases as BlendTec are as rare as winning the lottery.