Dec 5, 2014

A Simple Formula For Successfully Tracking Social Media ROI

Chris Harris
Dec 5th, 2014 - 4 mins read

Social ROI

 

Can you measure ROI for social?

As a director of a social media agency, this is the eternal question. And I’ve been in too many meetings to count the number of times it’s come up… and rightfully so. The ROI (Return on Investment) for social media is important, and those who work in social media will be more successful for meeting this challenge head on. Being a digital channel alongside the likes of PPC (pay per click), email, SEO, display etc, social media gets compared to and (wrongly) judged against other more direct-response media.

Why do people use social media primarily? Why do you use social media? Not to be prompted into directly buying something I bet. So the rules ARE different for social. And it’s important to think about social media differently to other channels in your marketing mix. But you can still look to track the ROI of your activity from day 1. How? Let me take you through how we would do it…

 

What is the formula?

To calculate the ROI, the formula is as follows:

 

Social media ROI = (SM return – SM investment) / SM investment %

 

And this calculation needs to be done after the investment has taken place, or the social media activity has run. Let me now take you through an example of how this can be applied to business objectives.

 

What are your goals for social media?

Let’s start with a simple goal, and one that we can all relate to – Grow the audience of my social media presence

Every goal should also have at least one objective and KPI (Key Performance Indicator) to measure how you achieve that objective. Why are you looking to grow the social media audience? Vanity metrics aside, what you should be trying to achieve from your social media audience is long-term customer advocacy for your brand. KPIs are straight forward in this example, they are the increase in number of fans for your brand as a measurable metric.

Then we’d set off to meet that objective however has been determined. That might be a Facebook promotion, a competition on Twitter, a new product launch preview to Instagram followers, even through to hiring a social media marketer or agency to devise and run a strategy for you. Only once the activity has run can we analyse how it performed…

 

Campaign example – Photo Competition

Let’s use a typical example for a social media campaign – a photo competition on Facebook. You assign a budget of £20,000 for the campaign, to include an application for people to submit photos, paid media adverts and promoted posts, social content to promote to your followers, and someone to manage the campaign and engage fans. This £20,000 is your total social media investment.

To determine whether we got any bang for our buck there are first a few things we need to calculate to input into the ROI formula.

 

Social media ROI = (SM return – SM investment) / SM investment %

 

We already know the total investment, as £20,000…

 

Social media ROI = (SM return – £20,000) / £20,000 %

Now, let’s take SM return. Say your photo competition campaign you have run on Facebook has increased your fans by 5,000. These are the new fans you’ve acquired from the social activity as a direct result of the investment. But they currently don’t have a value. Here we need to assign a value to that increase in fans. This is the tricky bit, and can be as scientific as you can get it. Essentially you need to assign a lifetime value to a social fan.

To do this first calculate the overall lifetime value of a customer. You may have seen this referred to as LTV or CLV. It’s what value a customer has to your business over their lifetime. For a retailer it might be how much the average customer spends in your store in their lifetime, or for website it’s the average value a user is to your advertisers. There’s a whole other post dedicated to the workings of LTV so I will leave it here.

Say your brand assigns a value of $50 as their LTV.

Next you need to either work out (through polling your social media audience) or estimating what percentage of your social media audience is a customer. And this will be different depending on what type of brand you are but I’m sure you have a fair idea of what this is.

For this example, let’s assume that there’s a decent cross-over between customer and social media follower – at 20%.

So the value of a social fan is – $50 (LTV) x 20% (customer/fan ration) = $10

So to calculate the value of our 5,000 new fans: $10 x 5000 = $50,000

 

Let’s plug that into our ROI formula…

 

Social media ROI = ($50,000 – $20,000) / $20,000 % – Therefore our social media ROI for this campaign is 150% or +1.5.

A pretty health return on investment for this example thus proving the campaign has been a success. This formula should work for any of your social media goals if correctly applied. No longer should social media marketers be working in the dark when evaluating their social media campaigns, if the right planning is in place from the start.

Are you calculating the success of your campaigns in this way?

ROI Success

Chris Harris
Dec 5th, 2014 - 4 mins read
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