Everyone is buzzing about Social Media (SM) and of course I can’t say that I don’t enjoy it. I wanted to discuss two recent successes in the SM arena.

First, let me define how I am measuring success. I measure Success by ROI. Not “Return on Ideas” (or some other strange notion) but actual “Return on Investment.” In simplest terms, dollars and hours invested vs. dollars earned. I’m ignoring intangibles like “brand equity” or social mentions.

Update/Disclaimer: as clarification, this is an exercise, an illustration. Not a case study there are a lot of ifs! The point isn’t the actual numbers but to point to ideas and thought processes.

Stanley Burrell aka MC Hammer

Example 1: MC Hammer

Many people know at least one lyric of an MC Hammer song. As one of the first celebrities to twitter, MC Hammer continues to engage with fans and would-be fans, all 784,946 of them.

Personally, MC Hammer was never on my radar until he started using Twitter. Prior to “meeting” him there, I would have never noticed that he has a new TV show coming this Sunday. While I can’t a specific number on it I can assure you that MC Hammer using Twitter before releasing a TV show was brilliant. He reminded many, non-hardcore fans that he’s still around and likely gained a fair number of new fans by leveraging a new technology before the rest of the crowd.

The reality show may not be something that a lot of us will watch but most certainly there will be viewers. Advertisers may jump on board and while it’s not likely to be the most popular show on the air, Stanley will be getting paid.

The show also lets him leverage his Twitter celeb status by using Twitter on the show. He’ll also build more exposure for his DanceJam business venture.

So while we can’t put an exact number on it, the time he’s invested in Twitter is worth it. According to tweetwasters he’s only spent around 31 hours on the service (posting a total of 3,685 tweets (at post time) since May of 2007 when he first started his account. Not bad for a couple of years.

So for the sake of establishing a little bit of Twitter ROI, let’s do some math. To make things easy we’ll leave out other ventures and just take a look at sales of MC Hammer’s music.

Let’s assume that he’s getting 10%^{[1] of the sales and we will just focus on one album. We’ll go with the “Greatest Hits” album as our baseline. Now iTunes won’t give us actual sales numbers and I can’t afford a Nielsen SoundScan subscription, so we’re going to have to do some guessing.}

^{Let’s assume that 10% of iTunes users have Last.fm installed and are actively using it. According to the stats they show, 122,226 people have “U Can’t Touch This.” Using our guess of 10% makes an assumed 1.2 million people (pretty conservative since Twitter is still low on the Internet user radar compared with iTunes) who own a copy of that song digitally. Currently that song is selling for $1.29 on iTunes.}

^{If MC is getting 10% of each sale then he’s making 13 cents a track. At 13 cents a track that’s $156,000.}

^{Not a ton of money, but since we’re just taking an educated guess at all these numbers, it could be more (or less). Now we can’t assume that all these sales are coming from efforts on Twitter but let’s just say that 10% of these sales came from Twitter exposure. We’re ignoring overhead and sunk costs here since we’re assuming online sales only of tracks that have already been recorded.}

^{That’s $15,600 for those of you still doing the math, or $503 for each hour invested in Twittering.}

^{I don’t know about you but $503 an hour isn’t bad! (Oh and if you’ve got more acurate numbers to make theses guesses better please share! We are of course ignoring the other benefits gained by Twitter exposure and full album sales.)}

^{Example 2: SquareSpace}

^{Recently if you’re a Twitter user you’ve probably seen the #squarespace hashtag. SquareSpace is a website building and hosting company.}

^{Jumping on the Social Media bandwagon with a contest isn’t new, but SquareSpace is doing it the right way. Taking advantage of the buzz that already surrounds another tech savvy company called Apple, SquareSpace is giving away 30 iPhones in 30 days. Well technically they’re giving away $199 gift certificates that are good at the Apple Store.}

^{SquareSpace has been on Twitter since April 2008 and on June 1st they had 765 followers according to twittercounter. Several times they’ve reached trending topic status on Twitter in the last couple of days but currently they have 21,930 followers! That’s a pretty big jump!}

^{So let’s take a look at this success. First here’s the math on cost/investment: 161 updates for maybe 80 minutes of time invested in tweeting. Figure 8 hours to design and implement the page for the giveaway promotion. Another 8 hours for brainstorming to come up with the idea, and another 15 hours actual administering the contest (30 minutes per day). $6000 in Apple gift certificates and we’ll assume that hosting costs for the giveaway page are negligible. A total investment of 33 hours and $6000.}

^{Now just to make the math easy, let’s assume that they gain they achieve 1% sales-to-followers rate. At present that’s over 200 new customers, so let’s make it even harder.  We’ll take away the original 765 followers before the contest and assume they’re already paying customers.}

^{Now let’s give them only a .2% conversion rate ((21930-765=21165) * 0.002)=42.33. If those 43 customers purchased the pro $14/mo package. Since most people keep their websites around for awhile we’ll assume that those 43 customers stay on at $14/mo for at least 1 year. That’s $7224.}

^{Now let’s assume that we lose 50% of these customers after the first year so the second year we make $3612.}

^{Ignoring overhead that’s a very conservative $10,836 in revenue. Or $146.54/hour (10836-6000)/33).}

^{Not bad and if they were able to double or triple the conversion rate, they’d be doing really well. We’re also not accounting for folks who don’t follow them but converted from press or blog posts elsewhere or the folks who aren’t following them yet.}

^{(Oh yeah and with 32 million visits in Aprilignoring the 90% of people not really twittering that’s exposure to 3.2 million potential customers over a month’s time! We’re also ignoring the fact that many of these followers will remain after the contest producing new followers and new conversion opportunities! And then there’s SEO and more…)}

^{The Bottom Line}

^{Promoting with tools like Twitter makes sense, but don’t do it without a goal in mind. These two examples show that you can make money using social promotion tools. They also show how Twitter and other tools, are just a part of a complete strategy.}

^{If you don’t have a plan to measure your ROI you are wasting your time. If you plan right you can do some amazing things with a tool that costs nothing but your time! If your audience is plugged into Twitter and you build the right kind of campaign you can turn a great ROI.}

^{Got some more (better?) examples? Better data for my guesstimate math? Leave a comment!}

^{Thanks to the wonderful @LydiaBreakfast for editing this post for me!}

^{PS Did I mention that Nullvariable can help your business get started and generate some cool ideas in this area?}