ROI for Social Media is Complicated, or Is It?

People always questions about how to measure the return on investment (ROI) of their social media accounts. The answer is that ROI is a very difficult metric to use for evaluating the success or failure of your social media activity. After all, how do you measure a smile from a happy customer that talked with your company and came back two months later to make a purchase? ROI only comes in handy when looking to understand how different marketing tactics have performed in their cost-effectiveness.

Calculating ROI for social media is so challenging because it is nearly impossible to measure what your business has spent on social media and what immediate results are being drawn from it. You might be able to total up the costs of labor, social seeding, consulting, and content writing services you’ve spent, but this is a cakewalk compared to placing a number value on what you’ve gained from your investment. Many businesses fall into the trap of miscalculating what a “like” on Facebook or “retweet” on Twitter is worth and fail to accurately determine sales conversions generated directly from their social media pages.

measuring social media ROI


Steps for Measuring Social Media ROI

All that being said, it is possible for social media to produce ROI in dollar signs and for you to measure that your social media marketing efforts are paying off. While it will require you to keep up with changing algorithms and the newest tools hitting the online marketplace, there are strategies to measure your social media’s ROI. In order to break this down into simple terms, below we have provided a step-by-step guide with numerous examples to show you how to measure your company’s ROI for social media.


1. Establish Social Media Conversion Goals

As with creating any other solid marketing plan, the first step is to establish the social media conversion goals for your business. Different organizations tend to have their own unique objectives in using their social media profiles, but you will want to choose a goal that leads to measurable customer action. Before you can ultimately track and calculate your ROI value, you will need to determine your conversion goals so that you know exactly what factors to measure and what social media success looks like to you.
When choosing your company’s specific goals, it is essential that you dictate exactly what you want your new and existing customers to do on your social media accounts. For instance, good conversion goals could include having customers make online purchases, filling out your contact form, clicking on a link, signing up for an e-newsletter, downloading a PDF, sharing your posts, liking your social media page, viewing a video, spending time on your website, and so on. Rather than goals to simply increase sales and boost profit, focus in on measurable objectives that you will be able to eventually place a monetary value on.


2. Keep Track of Your Conversions

If you cannot explain what that visit-to-lead conversion rate for your social media traffic is, then there will be no way to measure ROI. You must keep track of your conversions by determining the amount of social media traffic you’re generating and what percentage of these visitors turns into actual sales leads. Also, keeping your eye on conversions will provide useful metrics that be imperative when comparing all of your social media platforms with one another.

Of course, the method with which you track your social media conversions will vary greatly depending on the platforms you use, your goals, your budget, and your company’s IT system. In most situations, Google Analytics and other built-in social media tracking systems will have you covered in measuring conversions though. For example, the Twitter conversion tacking app for businesses to fully understand the full conversion impact of their Twitter ads and promoted tweets. Metrics that you should be looking out for to measure ROI for social media include:

  • Reach – The more you have of it, the more people will be viewing your company’s content, spreading your messages, and boosting your ROI. Therefore, you should track how your social media reach is increasing over time by recording the number of Twitter followers, Facebook fans, Pinterest boards, and LinkedIn members you have. Reach is often tracked easily from right within your social media platform.
  • Traffic – Helping social media fans to visit your company’s website or blog where the conversions will happen is the ultimate goal of any social media marketing plan. You should look at your website’s referral sources to place a number on how many visitors are coming to you via social media and monitor it over time. Take notice of all increases in social media traffic to learn of ROI improvements.
  • Leads – When measuring your social media marketing ROI, leads are arguably the most essential metrics to keep traffic of. In this case, leads refer to the ratio of conversions that are coming from each referring social media platform. After monitoring the traffic generating from social media sites, look at how many of these visitors are actually converting into qualified leads for business.
  • Customers – Finally, track the number of leads generated from social media that are becoming paying customers and maintaining loyalty with your company. Make sure you know exactly how many of your leads are transforming into customers because attributing actual customers to social media will make your marketing efforts pay off.

3. Assign Monetary Values to Your Conversions

If you are aware of the lifetime value (LTV) of your customers, it can be easy to simply to backtrack this historical data to generate a conversion value. For businesses that don’t have access to this data, some guesstimating will be needed using your experience and common sense. In order to assign a monetary value, you should hypothesize how much you would be willing to pay a third-party person to generate signups to your business’s website. You can use that value for the time being and make needed changes once you possess the historical data.

Now that you know the average customer LTV in your business, you have all the makings to find out what your social media conversion value will be. Since this may be a bit complex, let’s pretend that your average LTV per customer is $150. If you know that one in every ten people who view your page’s video become customers, then you can determine that the value of getting a visitor to watch the social media video is $15 because 10% of 150 is 15.


4. Measure Total Value by Social Media Platform

The next step is to combine your knowledge on incoming traffic with conversion numbers for each of your individual social media accounts. Due to the fact that this involves quite a bit of math, it is suggested that you use your Google Analytics tool and create a spreadsheet to avoid any accidental mess-ups or added confusion. In your spreadsheet, you will be measuring the total benefits of each channel by correlating conversions with their monetary value.

Since I can start to see your eyes glazing over from here, let’s break this down into simpler terms by continuing with our previous example. As a reminder, we calculated that the monetary value was $15 per video view. Now, let’s take this a step further to measure how this adds up for social media accounts by multiplying the total views by $15. So, if 3,000 Facebook users viewed your company’s video, then your total benefits would equal $45,000. You would then continue with this process and add up all of your total benefits across social media channels.


5. Figure Your Total Social Media Costs

Before you can measure the ROI for social media, you will now need to figure out the total costs your business spends to conduct these marketing efforts. You should be able to add up the promotional account fees and sundry costs that you expend for each of your chosen social media platforms. Then, you will need to estimate the number of labor hours spend on the social media marketing, multiply it by your hourly wage, and add it in with your fees.

For example, let’s estimate that the total promotional account fees and other sundry costs for running your LinkedIn page are $180. You have hired a social media team who puts in 500 labor hours to maintain this LinkedIn account and are paying them $50 per hour, which equals a grand total of $25,000 in labor. Adding both of these totals together results in $25,180 spend for completing your marketing efforts on LinkedIn. You would then continue this same process and add up all of your total costs across all social media channels you use.


6. Analyze Your ROI Results

Once you compile the data from the fourth and fifth steps, you will have the data needed to finally determine your social media ROI per channel. In determining return on investment, you will need to take your benefits, minus your costs, times by 100, and divide by your costs. For instance, if you receive $55,000 from your Facebook page and only spend $20,000 in total costs, you will calculate a ROI of 175%. Having this ROI for social media data will be helpful in looking for channels that are lacking in performance so that you can improve your overall marketing efforts down the road.


Final Words

What happens if you are not involved on social media and your potential clients never are able to find you? What are the upsides to never being seen or heard? Is it better to be out in the wild talking with prospective customers, or being timid and waiting for them to find you? Let’s face it; you all know the right answers. Social media is essential to drive web traffic towards your website and converting visitors into loyal customers.

But, you cannot simply spend hours surfing through social media platforms without determining whether your determination is actually paying off. No matter how frustrating and complex it gets, ROI for social media is a numbers game that businesses need to play to ensure their social media marketing campaigns are working. When you are aware of the return on investment for each of your social media accounts, you will be able to readjust your marketing plan and retarget your audience to boost your company’s overall success.

About the author
Shane Barker is a digital marketing consultant, named the #1 social media consultant in the nation by PROskore Power Rankings. He has expertise in business development, online marketing and is an SEO specialist who has consulted with Fortune 500 companies, government agencies, and a number of A-list celebrities!

2 comments to "ROI for Social Media is Complicated, or Is It?"

Arshad Amin January 15, 2015 at 1:35 AM    

This is one thorough and really actionable post I have read on measuring ROI in terms of socila media. Thank you for sharing!

asif January 23, 2015 at 12:14 AM    

This is very very informative post

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