Is There Really a ROI on Social Media?

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People always ask me how they can measure the return on investment for their social media activities. In short, my answer is that calculating such a parameter for social media is a challenge. ROI can be useful for determining how your social media marketing techniques have performed with cost-effectiveness, but it’s similar to measuring a smile from a happy customer returning three months later to buy a product.

Measuring ROI on social media is nearly impossible because it’s difficult to monetize what your company has spent on social media marketing and what results you’ve drawn in. Social media is essential for small business owners. Yet, how much time and effort does it devour? Sure, you can add up costs spent for labor, content writing, web design, and consulting, but that’s a cakewalk in comparison to measuring what you’ve received from these investments.

Many business owners fall into the trap of miscalculating the earnings behind “likes” and “retweets” in determining their social media conversion rate.

We all know that social media is great for producing brand awareness and building customer connections, but can it actually produce good ROI in dollars? Yes, social media can produce return on investment! For instance:

Coffee Groundz started using direct order channels on Twitter and realized 20 to 30% sales increases.

Vitabiotics used Facebook and Twitter to get feedback on their products before launch, and reaped $ 100,000 in savings compared with traditional test marketing strategies.

Jimmy Choo also allowed customers to geolocate upscale stores featuring their shoes on Twitter and saw a 33% increase in sneaker sales.

Measuring ROI on Social Media

Since it’s clear that your company can generate solid ROI in dollar signs from social media activity, you’ll need to understand follow the complex steps to calculate how these efforts are paying off. You’ll need to stay up-to-date on the latest algorithm changes and new online tools to help measure your social media ROI. The following is a step-by-step guide with helpful examples and screenshots to help your company evaluate your social media’s ROI.

1. Establish Clear, Measurable Conversion Goals

When creating your company’s social media marketing plan, the first step is to create clear conversion goals. Objectives will vary greatly from organization to organization, but you must select goals that lead to a specific measurable customer action in social media. Before you can pinpoint your ROI value, your conversion goals will tell exactly which factors you’re measuring and what success will look like.

If you’re drawing a blank, a good conversion goal could dictate the number of likes, follows, or shares you’re receiving on a social media account. You could also measure video views, website traffic, PDF downloads, newsletter signups, link clicks, online contact forms, etc. Always remember that your conversion goals should include a measurable objective where you can assign a monetary value in dollar signs.

2. Track Your Conversions

Once you determine what metrics you’ll focus in on, you’ll need to keep track of your visit-to-lead conversions to help with calculating your ROI on social media. Take note of how much social media traffic you’re generating and how many of these website visitors are converting into buying customers. It’s suggested that you track conversions on two different social media platforms, like Facebook and Instagram or Twitter and LinkedIn.

Ways you track your conversion rates will depend on which social media platforms you’re using, your IT system, your budget, and your conversion goals. Generally, Google Analytics is a valuable tool to give insight into your conversions, but you should also consider using built-in social media tracking system if available. Some metrics that will help you measure conversions include:

  • Reach: The more Twitter followers, Facebook fans, and LinkedIn members you have, the more chance there is that your website content can be spread. Since more people will learn of your company, there’s a higher opportunity for gaining good ROI for your campaigns or promotions. Reach can usually be tracked right in your social media account.
  • Traffic: Of course, the major purpose of any social media marketing plan is to drive Internet users to your website to make conversions happen. Keeping track of social media visits from your Google Analytics tool will help determine your ROI.
  • Track social media visits from Google Analytics

  • Leads: Leads refer to the number of inquiries you receive from customers as a result of a social media campaign. After monitoring the number of quality leads you’ve received, then you can calculate your company’s conversion rate and ROI.
  • Customers: Last but not least, knowing the number of customers you’ve gained over a certain period of time from a social media campaign is essential in helping you finally calculate ROI for social media activity.

3. Allocate Monetary Values to Conversions

If you already know the lifetime value (LTV) of your customers, it’ll be simple to backtrack towards a conversion value. For example, if your average LTV is $ 200 and one of 20 people who view your video become customers and then you’ll know that each view is worth $ 10.

On the other hand, if your company doesn’t have this historical data for any reason, then you’ll need to use some creativity in guesstimating the value through common sense and experience. Imagine that a reliable consultant promises you 1,000 signups for your company’s newsletter. What would you be willing to pay him or her for each signup? That’s the value you should use. Later on, you can review or change this value based on hard data.

When you’re looking to calculate the monetary value for conversions, the formula is:

A – People who become paying customers (1 out of 20)

B – Total number of viewers (20)

C – Average lifetime value ($ 200)

Monetary Value = (C/B) x A

In our example, the Monetary value = (200/20) x 1 = $ 10.
monetary value for social media conversions

4. Calculate Total Benefits for Each Channel

You’ll need to calculate the total benefits earned from each of your social media platforms to help determine ROI on social media. Using your analytics tool, record the number of total incoming traffic and conversion numbers of each site.

Next, create a handy spreadsheet to correlate that data with the total monetary value of each conversion. Benefits can be calculated by multiplying your monetary value by your conversions. For instance, 2,500 video views on Facebook times a monetary value of $ 10 would equal $ 25,000 in benefits.

Benefit ($ ) = Monetary Value ($ 10) x No. Of Views

Channel
No. Of Views
Benefit ($ )
Facebook
2,500
25,000
Twitter
2,150
21,500
Linkedin
1,100
11,000
Instagram
1,000
10,000
Pinterest
800
8,000
Total
5,100
$ 75,500

5. Measure Your Social Media Costs

To fully understand your return on investment, you’ll first need to know the exact amount of money you’ve invested into each channel. Add up all of the labor costs, promotional account fees, and other sundry costs associated with maintaining your social media accounts. For example, if you pay an account manager $ 50 per hour for 400 hours to maintain your Facebook page and fork over $ 200 in promotional fees, your total cost would be $ 20,200.

Fees ($ )
Labor Hours
Labor Costs ($ 50 per hour)
Cost Per Channel ($ )
Channel
$ 200
400
20,000
20,200
Facebook
$ 200
300
15,000
15,700
Twitter
$ 100
250
12,500
12,600
Linkedin
0
250
12,500
12,500
Instagram
0
250
12,500
12,500
Pinterest
$ 500
1,450
$ 72,500
$ 73,000
Total

6. Finalize Your ROI Results

Finally, you’ll need to gather the data discovered in the previous two steps to determine your exact ROI on social media per channel. For calculating ROI, use the formula:

ROI = (Investment Gains – Investment Costs) x 100 / Investment Costs

Channel
Benefits ($ )
Costs ($ )
ROI (%)
Facebook
25,000
20,200
23.7
Twitter
21,500
15,700
36.9
Linkedin
11,000
12,600
-12.6
Instagram
10,000
12,500
– 20
Pinterest
8,000
12,500
– 36
Total
$ 75,500
$ 73,000
3.4

From our charted example, you can see that Twitter and Facebook provided the maximum profit, but the other social media channels weren’t profitable. After following these six steps, you’ll discover which specific platforms are helping your business grow and which aren’t keeping up. Then, you can focus on the most profitable channels into the future.

The Final Verdict

It’s been said that “Marketing is more like experimenting, rather than guessing.” Getting involved in social media platforms can deliver the rewarding boost your business needs to open new doors towards expansion. Social media continually plays a prominent role in generating web traffic and helping businesses convert site visitors into loyal customers.

Using this guide, you’ll arm yourself with useful knowledge about your ROI on social media to make wise choices in which social media channels you’ll focus on for maximum benefit.

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