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Social Media ROI vs. ROA: Put Your Money Where Your Word-of-Mouth Is

By Ron Shevlin, Senior Analyst with Aite

In November 2010, The Financial Brand published an article titled “Why Social Media Is a Waste of Time for Most Banks & Credit Unions.” The article stated:

“Go to any bank or credit union Facebook page and what will you likely see? Not more than a couple hundred ‘fans’ (or ‘likes’). Check out their Twitter account and you’ll find maybe a hundred ‘followers’ who, ostensibly, are ‘listening’ to the occasional tweet about extended Saturday hours or the latest shred day event. Take a look at their blog and you’ll be lucky to see more than one post per month and no comments. It’s time to admit it: Social media for most financial institutions — at least as a marketing tool — is basically a waste of time.”

The discussion that followed was, not surprisingly, very lively, with proponents and opponents espousing perspectives.

At the time, I chose to stay out of the discussion (I was in the middle of researching the use of social media in financial institutions). Although I agreed with many of the reasons listed in the article why social media is a waste of time, I didn’t want to believe the arguments laid out in the article.

Having studied how 50 credit unions are using social media tools and technologies for marketing purposes, I now know where I stand on this argument: Social media is not a waste of time. However, I have concluded that many credit unions may very well be wasting their time with social media.

These are not conflicting conclusions.

The former implies that social media — the tools and technologies — is, in and of itself, a waste of time. From the research I conducted, I couldn’t reach that same conclusion. However, the research does suggest that dabbling in social media doesn’t pay off for credit unions. In order for social media to have any real marketing impact, you either need to make a significant investment or you are probably are wasting their time.

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Today, credit unions invest, on average, barely more than 2% of their marketing budget on social media. That’s just the average. One in every two credit unions spends so little that the amount is too small to bother quantifying. A mere one in 20 credit unions invests at least 10% of its marketing budget into social media.

That will change, of course. Aite Group forecasts that the average percentage of a credit union’s marketing budget dedicated to social media will increase five-fold in the next four years, up to 10% by 2015.

Will 10% be enough?

Probably not. Here’s why.

Assume, if you will, that you work for an “average” credit union, with US$250 million in assets and growing 5% per year. If you allocated a typical percentage of 0.13% of assets to marketing, your budget would be $250,000 this year, and just over $300,000 by 2015. If you invest 2% of that — the industry average — into social media, you’re only talking about $5,000 in 2011, climbing to no more than $30,000 by 2015. (There are many credit unions who spend more than $30,000 on their annual general meeting.)

Assuming your credit union’s investment in social media yielded a 200% return, the impact on the bottom line would still be negligible. If the average return on assets (ROA) for credit unions is 0.44%, your social media “success” would kick that up 0.45%, an unimpressive gain. Projecting this same level of return through 2015, the resulting ROA increase from social media would be six one-hundredths of a percentage point (0.06%).

My point is this: Even with extraordinary rates of return (few marketing investments produce a 200% to 300% return on investment in the first year), the absolute impact on overall profitability is marginal at relatively low levels of investment. For social media marketing to have a major impact on profitability, credit unions will have to invest a significant percentage of their marketing spending on social media. In other words, credit unions have to put their marketing money where their word-of-mouth is.


Ron Shevlin is a senior analyst at Aite Group, a Boston-based research and advisory firm serving the financial services industry. A description of his report “Social Media at Credit Unions: Put Your Money Where Your Word-of-Mouth Is” is available here. Ron is a regular contributor here at The Financial Brand.  You can read more from Ron on his blog, or follow Ron on Twitter.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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Comments

  1. Good point and conclusion. We aren’t really focused at all on social media, and we certainly don’t spend any money on it. However, we are positioning ourselves to do so in the future. Times are changing, but solid planning should continue throughout. Many CU’s have no idea how to plan for this shift.

  2. Great article. I feel like Facebook and Twitter have sucked all the air out of the social media room. Being social is a lot more than pages on two websites. Look at USAA. It’s difficult to find a page on their website that doesn’t have member ratings, stories or questions. There’s a great Forrester case study that list the tangible results they’ve seen from making their own site more social. Credit unions and community banks are tailor made for this service but keep doing the same tired marketing that everyone else does. Hopefully some of the more forward thinking marketers will change this and take advantage of the current sentiment towards big banks. All major retailers do it and once again financial services is falling behind.

  3. I have to say that I disagree when it comes to measuring return, especially when many marketing spends are weak at best in drawing a solid line from investment to bottom line contribution. This isn’t a new problem for marketers, but I’d say it’s even worse for anyone who is only “dabbling” in any medium.

    Our venture into social media has been a learning experience far beyond the teachings of any conference breakout session or wide spread white paper. We’ve learned more about how people communicate, think, care, act, rant, rave…and as a result, we’ve gotten better and more diverse in the tools we use to market a message(video, photos, website structure) not just in the social space, but in every delivery channel. In turn, we’ve seen growth in new members and lending during a during a tough time.

    In the grand scheme of things, social media is brand spanking new but it’s clearly here to stay. I for one wouldn’t want to be on the bottom end of the learning curve when it comes to understanding and pulling value out of such a cheap, wide spread communication channel.

  4. Jill says “we’ve seen growth in new members and lending during a during a tough time.”

    Sounds like ROI to me.

    And if the “learned more about how people communicate…” part has helped to reduce traditional marketing research costs, then that sounds like ROI to me, too.

    Not sure where the disagreement lies.

  5. Ron,

    Could you please explain why a company or financial institution has to allocate most of their marketing budget towards social media for it to be effective? That would depend on the size of the financial institution, their budget, and how efficient they are. I disagree with that part.

    I agree with point that most companies are wasting their time with social media and the ones that are avoiding it do not understand it at all. The problem with social media is that the management teams that run financial institutions do not understand social media; nor do they incorporate it the correct way for it to be beneficial.

    My opinion; you do not need to make a significant investment… you need to make a significant committment and have the correct person directing the marketing effort.

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