Augie Ray is a Senior Analyst at Forrester Research. He is a leading expert on Social Computing and social media marketing.

Brands are making plenty of money in social media:  Dell Outlet’s Twitter account has generated millions for Dell, the Intel Channel Voice community has decreased costs by eliminating the need for expensive in-person events, and P&G used media mix modeling to demonstrate that the BeingGirl.com community is several times more effective at driving sales than the brands’ television ads.

Many marketers can draw a straight line between investments in social media marketing and financial results, but many more cannot.  This doesn’t mean social media marketing is ineffective; it just means that marketers have to recognize benefits beyond dollars and cents.  Facebook fans, retweets, site visits, video views, positive ratings and vibrant communities are not financial assets—they aren’t reflected on the balance sheet and can’t be counted on an income statement—but that doesn’t mean they are valueless.  Instead, these are leading indicators that the brand is doing something to create value that can lead to financial results in the future.

Traditionally, few brands have wholly evaluated their marketing in directly measurable financial terms, and my new Forrester report recommends a traditional measurement approach for innovative social media marketing programs.  Using a Social Media Marketing Balanced Scorecard, marketers can evaluate a diverse set of short- and long-term benefits that are both financial and not.  This approach furnishes several benefits, such as aligning measurement to all corporate objectives and not just sales; providing a means for gaining consensus from diverse stakeholders; and avoiding short-term gains at the expense of long-term brand health.

An affective Social Media Marketing Balanced Scorecard considers metrics from four different perspectives:

1. Financial: Has revenue or profit increased or costs decreased?
2. Brand: Have consumer attitudes about the brand improved?
3. Risk Management: Is the organization better prepared to note and respond to attacks or problems that affect reputation?
4. Digital: Has the company enhanced its owned and earned digital assets?

Marketers who only seek to measure results in one of these perspectives get an incomplete picture and as a result are unable to make effective decisions about social media marketing investments.  It is only by recognizing all of the benefits delivered by social media marketing that the complete value of these efforts can be understood.

Consider this: if Facebook were a country, it would be the eighth largest in the world by population, ahead of both Japan and Russia.

When I talk to people about using social media to market their business, I usually get one of two responses. Either they love using Facebook and Twitter or they really don’t see what all the fuss is about. Unfortunately, both are missing the point.

Social media is probably one of the biggest developments in business since e-mail. Never before has the communications playing field been so level. Social media allows for a single-person, sole proprietorship to have the same potential consumer impact as a Fortune 100 company, without the million-dollar advertising budget.

And yet people still misunderstand social media or, even worse, ignore it completely as a fad.

Take my two earlier examples of responses. The first guy thinks social media is all about Facebook pages and Twitter statuses. The fact is, there are literally hundreds of options in the social media pantheon. The trick is figuring out which ones work best for communicating with your target audience and focusing your attention on those.

As popular as Facebook is, it might not be your best choice. This takes time and attention that not every small business owner might have. This is where outsourcing or contract work comes in handy. A good consultant will help you research your market and decide on the best course of action, while leaving you free to run your business.

Even worse is the second response – indifference. These are the people with their proverbial heads in the sand, assuming all of this social media hooplah will fade away.

Social media is not a fad, and it is not just for kids. Businesses small and large are making lots of money using this social media stuff. Look at upstart blender maker BlendTec, for example. They struck marketing gold with their popular “Will It Blend?” videos on YouTube and saw their sales increase five times as a result.

Now before you grab a digital camera and try your hand at becoming a viral video director, you should know that BlendTec invested a lot of time (if not money) in producing their video series. This is key. You must be prepared for the real cost of social media marketing. What you don’t spend in dollars, you will spend in sweat equity.

But at the end of the day, if it’s done right, the return on your investment could be legendary…and profitable

Companies and executives are finally beginning to really jump on the social media bandwagon, and that’s fantastic. However, for social media to fully work (for everyone), businesses and brands need to be able to evaluate the impact their social media use is having, both positive and negative. Measuring social media ROI isn’t impossible, but it can be difficult because many of the pieces that need to be evaluated are difficult to track. This guide is designed to help you track down those pieces and determine the ROI you’re getting on social media.

ROI Reality Check