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How to Calculate Social Media ROI

Now that we’ve established the business case for developing and maintaining a strong social media program, let’s answer, head on, one of the myths you’ll hear often, maybe even from your boss. The biggest complaint made about social media marketing is that its impact, the return on investment (ROI), is unquantifiable. In a study by Econsultancy and Adobe,2 a mere 12% of companies reported that they could track the impact of social media on revenues or the bottom line.
Fully 57% of companies could report metrics no deeper than engagement, such as the number of followers, comments, and time spent on social pages.

I believe there are four practical approaches to measuring the impact of social media marketing. Together they provide a good, although not perfect, picture of your ROI.

Social Media ROI

  • Audience response: Track everything that’s trackable. As a digital medium, social is more easily quantified than you may think. Your website analytics, and the metrics provided by social networks, can measure impressions, interactions, visits, app downloads, event RSVPs, e-mail signups and other leads, coupon downloads, refer-a-friends, fundraising or sales—whether produced organically or through social media advertising. In your customer database, identify leads and prospects as having originated from social media. When they convert, allocate some of the sale to the social channel, along with directly tracked campaign and referral sales, for a valid ROI calculation.
  • Impression valuation: PR managers have long calculated the value of “earned media” impressions, or the impressions if a free media mention had been bought as a paid ad. While it’s a fuzzier and usually much bigger number than audience response, this ad value of impressions is a decent, established precedent 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. Sum up all these social media impressions, divide by 1,000, then multiply by a typical banner advertising cost-per-thousand, or CPM (usually around $10). This provides an easy ballpark measure of the reach and positive impact of your social media program.
  • Attitude & usage: If you can afford to commission them, “attitude & usage” (or A&U) consumer research surveys are a great way to track the evolving 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 a correlation between social media impressions and positive brand image is an entirely valid exercise. Improved brand equity always means improved business performance.
  • Cost savings: Some organizations have shifted substantial costs for telephone call-centers onto cheaper social channels. Consumer insights teams can gain free and instant feedback 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.
  • Loyalty impact: Probably the biggest 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 consumers gravitate to a brand’s fan page. Either way, though, if you’re not there to return your customer’s love, the opportunity is lost. Assume a conservative 50% improvement in customer retention, posi-tive 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, and you should see an improvement in customer loyalty and bottom-line revenue.

    Pull data from your Facebook wall to identify active members by name and location, and match them up with your consumer database. With a cell of flagged “Facebook loyalists” in your database, benchmark their buying patterns against the customer base as a whole. This exercise 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) customer 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. Compare the cost of sales, leads, and clicks to your other marketing channels. I’ve found that while social media advertising underperforms search-engine advertising when measured on a strict sales basis, it outperforms when lead acquisition is taken into account: that is, when your campaign produces sweepstakes entrants, catalog requesters, or e-newsletter subscribers who are later converted to customers via e-mail marketing or another channel.

Sum up all your social media program costs, including staff, software, and design and development services. My prediction is that you will find the tangible business benefits outweigh the expense—and the many intangible benefits further tip the scales. Hard though it can be to quantify, I’ve seen ample evidence that social media marketing is a high-ROI undertaking that compares very favorably with other online marketing and with traditional media.

 

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