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In business concepts, Return On Investment (ROI) is a term for the benefits gained from an investment. The formula is the net profit, or total amount gained minus original invested amount, divided by the invested amount *100%. The purpose of identifying this figure is to evaluate and decide whether or not to the current investment is economical.

Image (Source: www.roionline.co.za )

For a traditional business, the benefits can easily be seen and calculated as long as the sales figures handled correctly. Yet in a social media marketing perspective, there are more to be taken into account than merely capital gained. According to a report by iContact, how to determine ROI on social media is a great uncertainty for businesses. As the strength of social media is sometimes rather unpredictable, there are both tangible and intangible benefits that come from social media marketing. Unlike reading an accountancy report, there’s no universal rule to calculate ROI in social technology.

Following my case study in my previous post, I will use Starbucks Coffee Taiwan to discuss ROI on their promotion in social media. Starbucks was introduced into Taiwan by Starbucks Coffee International, Uni-President Enterprises Corporation, and President Chain Store Corporation in 1998. The Facebook fan page(統一星巴克同好會)was established in 2009;  0.5 million fans 2010; 846,000 by 2011; 1 million fans by 2012; 2013.10 1.5 million fans.

DA13_002(Source: sharpdaily.tw)

To discuss the effectiveness and ROI of Starbucks Taiwan using this Facebook fan page, I am going to make some assumptions as follows:

Starbucks Taiwan Human Resources (HR)employees a team of three full-time staff to run the social media marketing program, let’s assume their salaries per month are $55,000 NTD for the team-lead, and $35, 000 NTD for the other two team-members. A sum of HR cost in SMM is 125,000 NTD per month. Cost per annum would be 1,687,500 NTD (12 months’ salary + 1.5 months’ standard annual bonus). The total HR cost of running the program for 5 years would be: 1,687,500 *5 = 8,437,500. Possible pay rise and bonus are excluded in the equation, yet to make things easier, let’s round it to 8,500,000. Additional one-off cost such as 200,000 NTD on equipment. This team would most likely be located in the same building as the President-Union Corp. Ltd., therefore, cost like phone-bills, internet connection, office rent can be overlooked. Total investment of the social media team since establishment is $8,700,000 NTD.

Furthermore, I have set three scenarios as follows:

Scenario 1:

If the 1,517,251 (reached last month) fans each enjoyed just one coffee (say a Grande Latte) at Starbucks each month in 2013, their total sales from this crowd would 2,184,827,040 NTD (1,517,251 Fans *$120 NTD *12 mths)

Scenario 2:

If only half of those fans visit Starbucks once a month; the sales would be $1,092,413,520 NTD in 2013.

Scenario 3:

Let’s assume that each fan was encouraged and has had merely one Grande Latte since they clicked “Like.” Their sales from the fan page alone over the 5 years would be $182,068,920 NTD (1,517,251 Fans *$120 NTD); rounded at $182,000,000 NTD.

Scenario 3 is selected for discussions despite the unlikeliness of such low purchase rate. A college friend of mine who works at 7-11 convenient store(President Chain Store) told me that there is a net profit of roughly 50% I coffees sold from City Café (inside the convenient store). Let’s say Starbucks Taiwan, being a joint company with Starbucks Coffee International, has a lower percentage of net profit, so let’s take away another 25% as the cost of royalty, staff salary, utilities, etc.; that gives us an estimate of 25% of net profit.

The ROI of Starbucks Taiwan utilizing a Facebook fan page over the course of the five years is calculated as follows:

 {(182,000,000 *25%) – 8,700,000 / 8,700,000} *100%= 423%

Looks pretty impressive to invest in social media, right? These are just the tangible benefits estimated merely by the number of fans on their Facebook page. Bear in mind, that the figures in the assumptions reagarding th cost is not accurate and may be an underestimate. Assuming the 80-20 rule is in play, so let’s say 300,000 fans each somehow brought one of their friends to each a Grande Latte; that’s another 36,000,000 NTD of sales.

d110935 (Work by Douglas Hamilton,100 Sexiest Women in Nonexistence)

What about intangible benefits? This would be the “hard-to-determine” part of the greater equation. What about sharing the message of a promotion such as “Buy 1 Get 1 Free Day”? This has always been a big event that produces extremely long lines at every store. Personally, I first heard about the event on Facebook two years ago, and I am still not a fan of Starbucks fan page. Though, the promotion itself may not generate profit at all, yet it surely draws a huge crowd and attention; more check-ins or uploads on Facebook while they enjoy their coffee. Intangible benefits like branding, gaining popularity, earning new customers, and sales of accessories. A chance to serve people who can seldom afford to enjoy Starbucks and customers who do not use Facebook can also add to marketing by the word-of-mouth. The truth about ROI in social media needs to be looked at holistically and consider the amplifying effects from the fans. Starbucks Taiwan had operating revenue of 59.52 billion NTD and 4.67 billion net profits in 2012.

What are your thoughts?


Where’s My ROI on Social Media Campaigns?

10 Examples of Social Media ROI

Calculating Social Media ROI

3 Myths of Social Media ROI

How to improve your social media marketing return on investment

(The following reference are in Chinese)

Socail Media Applications

On Starbucks Brand

Reaching 1million fans

Reaching 846,000 fans