How To Calculate The Social Media ROI
There are scenarios where you can estimate the social media ROI and then in most cases you can’t.
Let’s first discuss the ‘Can‘ part:
Say you are selling a product or service, the simplest way to calculate the social media ROI is by tracking the volume of visitors that come to your website through different social media channels and how they convert into buyers.
You can track them using any advanced analytics tool such as google analytics.
If you are running a discount campaign, use facebook offers.
Your ROI here will involve the chunk of time and money you spent on ads promoting the offer and the total profit earned by selling those products.
Use the exact discount codes when running facebook offers, so you can easily track the sales by tracking the recovery of those codes.
Now let’s have a look at a scheme where you can’t calculate the ROI:
I started using twitter actively sometime last year. Almost every other week I would see people praising flipkart on my timeline.
Yes, I’ve heard of Flipkart before but I was reading real world reviews about its awesomeness.
I never ‘followed’ flipkart on twitter nor did I ever click on any URL they shared on twitter. But in the last one year I have made purchases close to $5000 from them.
Now how will flipkart calculate the ROI in my case?.
They have no idea I became their customer because of social media.
I’m sure there are countless others like me whose ROI can’t be gauged by brands.
The crucial part?
You can calculate ROI on a campaign-wise basis. Say if you’re running an offer or a ‘clicks’ based campaign which directs people to your sales page.
But social media also helps you build your brand, whose ROI is extremely hard to calculate.
What do we do in this case?.
In this article I will be talking about, 5 practical ways you can use to measure the ROI.
Now that we’ve settled the business case for advancing and sustaining a strong social media program.
let’s answer, head on, one of the myths you’ll hear often, perhaps even from your boss.
The biggest criticism made about SMM is that its significance, ROI, is unquantifiable.
In a study by econsultancy and Adobe, barely 12% of companies disclosed that they could track the influence of social media on revenues.
Fully 57% of companies could describe metrics not vividly than engagement, like the number of members, comments, and time spent on social pages.
Worryingly, one in 5 companies illustrated the state of their social media analytics as “almost none.”
I believe there are 5 practical ways to calculating the impact of SMM. Collectively they give a good, even though not perfect, picture of your ROI.
1. Audience response
Track everything that’s trackable.
As a digital medium, social is more easily specified than you may think.
Your site’s analytics, and the metrics contributed by social networks, can estimate impressions, interactions, visits, app downloads, event RSVPs, e-mail signups and other leads, coupon downloads, refer-a-friends, fundraising or sales.
Whether created organically or via social media advertising.
In your client database, analyze leads and prospects as having originated from social media.
When they convert, assign some of the sale to the social channel, along with directly tracked campaign and referral sales, for a valid ROI calculation.
2. Impression valuation
PR managers have long estimated the value of “earned media” impressions, or the impressions if a free media mention had been purchased as a paid ad.
While it’s a vague and usually a huge number than audience response, this ad value of impressions is a decent, set up criterion for social media managers to use as well.
Your impressions in social media include your own posts, consumer “likes” and comments, reviews and ratings, YouTube video views, and more.
Add all these social media impressions, divide by 1,000, then multiply by a classic banner advertising cost-per-thousand, or CPM (usually around $10).
This gives an easy measure of the reach and positive impact of your social media program.
3. Attitude & usage
If you can afford to commission them, “attitude & usage” (or A&U) consumer research surveys are a great way to track the grwoing visibility and reputation of your brand and how it’s being affected by all your efforts, including social media.
You can also track social brand mentions, customer-generated product ratings and reviews, and other signals of brand equity.
While this is not strictly an ROI calculation, showing the interaction between social media impressions and positive brand image is an exclusively valid exercise.
Enhanced brand equity always means improved business performance.
4. Cost savings
Some organizations have altered substantial costs for telephone call-centers onto inexpensive social channels.
Consumer insights teams can gain free and quick response from online communities rather
than paying for a focus group.
Marketers can forgo some traditional advertising and promotional expense, and business-to-business (B2B) teams may be able to skip some business travel or conference-going by hosting webinars or Google+ hangouts, or by doing wiki-style online collaboration.
5. Loyalty impact
Possibly the largest ROI contribution of social media is the enhanced relationship between brand and consumer.
It’s a chicken-and-egg question whether social media engagement creates brand loyalty, or the other way around.
As the most loyal buyers incline to a brand’s fan page.
Either way, though, if you’re not there to bring back your customer’s love, the opportunity is lost.
Consider a conservative 50% improvement in customer retention, positive brand sentiment, spending, or lifetime value when you turn an ordinary customer into a brand advocate.
Grow your facebook and other online communities in raw numbers and as a percentage of your customer base.
You should see an improvement in customer loyalty and bottom-line revenue.
Pull data from your facebook wall to find active members by name and location, and match them up with your consumer database.
With a cell of flagged “Facebook loyalists” in your database, gauge their buying patterns against the consumer base as a whole.
This task quantifies the added value of your facebook fans.
Invest in growing that fan base and cultivating a positive relationship with members, and the ROI is easily calculated.
Say this year’s facebook community represents 10% of your customer base, and its members yield 50% more revenue than average.
If next year’s community makes up 15% of your (growing) consumer base, the business will generate 2.5% more sales overall.
Thanks to its more loyal and engaged customers.
To do the ROI math, start with your paid advertising, determining your return on ad spending, or ROAS, for each campaign and your social media advertising program as a whole.
Contrast the cost of sales, leads, and clicks to your other marketing channels.
I’ve found that while social media advertising beats search-engine advertising when measured on a strict sales basis.
It exceeds when lead acquisition is taken into account.
That is, when your campaign produces sweepstakes entrants, catalog requesters, or newsletter subscribers later converts to customers via email marketing or another channel.
Adding up all your social media program costs, including staff, software, and design and development services.
My guess is, you will find the real business benefits cancelling out the cost and the many intangible benefits further tip the scales.
Hard though to quantify, I’ve seen great proof that SMM is a high-ROI task that compares fairly with other online marketing and old media.
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