Calculating social media ROI is the bane of most marketers today.
Sprout Social surveyed 3000 marketers, out of which 55% said that they found measuring social media ROI their biggest challenge, and 70% said they simply don’t bother measuring it.
This means a majority of marketers are conducting their business completely in the dark, without having a clue about how it’s tangibly benefiting them.
Shocking, isn’t it?
Actually it isn’t. To be fair, social media efforts can be tricky to measure.
One, they produce “soft” leads that don’t directly and instantly improve the business’ bottom line.
Two, there are some things like brand authority and awareness that social media marketing boosts but that are impossible to calibrate in hard numbers.
Three, most marketers track social metrics (likes, shares, impressions) that can’t be calibrated in dollars. Plus, they make little sense to non-native CEOs who relate better to direct sales, email subscribers, and website visits.
But, at the same time, you simply can’t avoid measuring social media ROI.
Putting a number on your social media marketing efforts justifies the expenditure and worker hours that you invest in it. It also highlights the most bankable channels, strategies, markets, and influencers. And most importantly, it helps you craft marketing strategies that produce assured, reliable returns.
Now that you grasp the significance of social media ROI, I’m going to walk you through a tool-backed measurement process that eliminates number crunching.
How Tech-Savvy Marketers Should Measure Social Media ROI
Before we start with the actual process, determine the key performance indicators/metrics (KPIs) that define “ROI” for you. These are the goals against which you weigh your marketing performance. Keep the KPIs as sales-oriented as possible.
For example, if you leverage PPC advertising, track measurable metrics like “cost-per-click” or “cost-per-impression” instead of just “impressions” or “clicks.”
Because they give credence to your marketing efforts and help you compare the monetizing potential of different marketing channels.
After that, follow the process outlined below. To simplify things, I’ve used an illustration of a paid ebook. Why? Because I often get requests from marketers asking for help calculating the ROI from intangible things like downloads and brand mentions. So, here goes:
The basic formula for calculating social media ROI is:
Social Media ROI (in %) = (Revenue – Cost) / Cost X 100
Revenue = All direct and indirect gains from a content piece/campaign
Costs = All direct and indirect costs incurred on creating, marketing, and selling the collateral
Illustration: Let’s say you are offering a downloadable ebook on your website for $50. The ultimate aim of the ebook is to sell your core products/services (that you promote in the ebook content).
The ebook was downloaded 10 times. Five people purchased $50 worth of products after reading the ebook (how did you determine that? I’ll come to that later).
What is the social media ROI?
To get that answer, look closely at your marketing funnel and analyze the journey of each customer.
Look at the costs associated with drawing people into the funnel and moving them through the stages. Along the way, keep a tab of the revenue each stage yields. Then, deduct costs from revenue, divide the difference by total costs, and find the percentage ROI.
This is what a typical marketing funnel looks like:
Image via Single Grain
Here are the steps that you need to follow to calculate social media ROI:
Top of the Funnel: Awareness Stage
How did people discover your ebook in the first place? Say, you invested $1500 in cost-per-click (CPC) campaigns on Facebook and the ad-creation cost was $100 (labor + tool fees, if any). The total cost will amount to $1600.
The total revenue depends on the conversion rates of your ad and ebook landing page.
To get these figures, add the Facebook Pixel snippet to your ebook’s landing page and “thank you” page. Or, better yet, use landing page building tools with built-in analytics. This way, you can find out how many copies of your ebook were downloaded by your ad viewers (let’s say 2, in this example). The revenue at this stage is $100 (2 X $50).
Middle of the Funnel: Consideration Stage
Not all ad-clickers will download the ebook, but they might explore your other offerings. While this doesn’t directly increase your ebook’s revenue, it definitely boosts engagement with your brand and might add to customer lifetime value (CLV).
That’s why following each lead as they move down the funnel is critical.
Bottom of the Funnel: Convincing Stage
You’ve tracked your leads almost halfway down the funnel. Now, you have to calculate ROI from people who went all the way down the funnel and purchased the ebook. To do this, add UTM tags from Google Analytics to your ebook hyperlinks. They will also help you find the number of non-ad-attributed ebook downloads.
For example, if you earn additional downloads by word-of-mouth publicity, the UTM tags will figure that out. You can add that revenue and proportionate costs to the corresponding figures in the previous step. At the end, compute the final ROI using the formula I mentioned above.
Are You Ready to Calculate Your Social Media ROI?
Social media is longer just a platform to connect and converse with people. I’ve seen a surge in ecommerce and entrepreneurship on social media. So it’s quite natural that you are curious to drill down into your social media ROI. The ninja technique I’ve outlined above can help you with the task.
Do you have any other questions about social media? Leave them in the comments. I’ll be happy to answer.
Shane Barker is a digital marketing consultant who specializes in influencer marketing, content marketing, and SEO. He is the co-founder of Attrock a digital marketing agency. He has consulted with Fortune 500 companies, influencers with digital products, and a number of A-List celebrities.