How To Calculate Social Media ROI

by Shane Barker January 28th, 2015 

Shane Barker

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.

Shane Barker

Business owners who invest money in maintaining their social media accounts for advertising purposes often ask me how they can calculate their return on investment (ROI).

While measuring the ROI of social media can help you determine if a certain campaign was successful or a complete failure, it’s a time-consuming task that involves several challenging steps.

Placing an exact dollar amount on your social media campaigns is next to impossible because it’s difficult to determine how much your company has spent on social media and what monetary results occurred specifically from it.

You can start by calculating how much you’ve invested in labor, content writing, consulting, and other social media services, but this won’t matter much if you can’t measure your exact profit. Many companies make the mistake of miscalculating “follows” and “likes” when trying to determine sales directed from social media platforms.


Steps To Measure ROI Of Social Media

Although it’s a tall order to fill, it’s possible to produce good ROI from social media and measure the dollar amount showing how your marketing has paid off. You’ll need to keep updated on social media’s ever-evolving algorithms, strategies, and tools to land on a perfect count of the return investment on your efforts.

Below I have compiled a step-by-step guide with useful examples to give you a better idea on how you can simplify the process of measuring your social media ROI.

1. Generate Social Media Conversion Objectives

Just like you would create a marketing plan for any product you sell, it’s important to establish clear social media conversion objectives for your company. Since every firm has their unique goals with their social media profiles, these objectives will vary greatly. Always generate objectives that result in measurable customer actions . Then, you’ll know what success looks like and the exact factors you’re measuring to track ROI value.

When choosing your company’s unique social media conversion goals, ask yourself what you want new and existing customers to do when on your social media profile.

For example, measurable conversion factors can include clicking on a link, filling out a contact form, making an online purchase, downloading a PDF, signing up for a newsletter, sharing a post, or liking your Facebook page. Focus on major social media objectives that can boost your social media page, help secure more sales, and eventually benefit your growing business.

2. Keep Track Of Your Social Media Conversions

To successfully calculate your ROI of social media, you need to steadily track your conversions to understand what stages you’ve reached and where your company stands on reaching your social media conversion goals. It’s impossible to measure your return on investment without knowing your visitor conversion rate. Ensure you can determine the number of visitors traveling to your page from social media accounts and the amount of those visitors making actual purchases.

Methods used to track conversion rates can vary depending on your company’s budget, social media platform, conversion goals, and IT systems. Google Analytics is a popular option for tracking conversions, but many social media platforms now have their own tracking systems available for this purpose. For instance, the Twitter conversion tracking app allows you to easily measure the impact of your company’s promotional ads and tweets.

Metrics that you should consider for measuring ROI of social media include:

  • Reach:
    In short, reach refers to your number of Facebook fans, Twitter followers, LinkedIn group members, and Pinterest boards, which can be easily calculated within your chosen social media platforms.
    With a larger reach, you’ll advertise your company to more potential customers and motivate them to make purchases. Due to the networking of social media, a larger reach will also increase your ROI because your contacts will send messages to other people.
    Keep a close eye on your social media reach to determine how many users see your content.

  • Website Traffic:
    The main goal of social media marketing is to build a captive audience who will visit your company’s website or blog and boost your conversion rate. For this reason, you should keep track of ads or social media pages that are steadily redirecting visitors to your business. Keeping these records will help you know which social media platforms are benefiting you most, what your ROI is, and what improvements can be made to enhance website traffic.
  • Quality Leads:
    As one of the most essential metrics to measure ROI, leads refers to the number of quality queries you’ve generated through social media campaigns.
    Analyzing your quality leads can make it easier to understand how many customers inquired about a product and how many converted into sales. Once you’re aware of your leads, you’re able to calculate your company’s conversion rate.
  • Customers:
    Last but certainly not least, knowing the number of paying customers you’ve gained over a certain time period from social media campaigns is critical.
    Keep track of how many customers are buying products from your website and remaining loyal to your business. Figure out the number of visitors transforming into customers and focus in on this targeted group in social media. You’ll be able to tailor your marketing strategy to these customers and potentially receive loads of profit.

3. Assign Monetary Values To Your Conversions

If your company already knows the average lifetime value (LTV) of your customers, then you can quickly generate a conversion value based on this data. However, if you don’t have access to this historical data, you’ll need to guesstimate based on common sense and your company’s previous experience.

To assign a monetary value, you could imagine that a consultant is offering you a chance to gain 1,000 sign-ups for your company newsletter. How much would you pay per sign-up? You can use this value for the time being, and change it once you acquire appropriate records.

Now that you’ve established your average lifetime value, you can calculate a value for each of your social media conversions. Although this process can be complex, it’s possible to complete efficiently with the help of a formula.

For this step, you’ll need to know your LTV and total number of new customers to assign monetary values to your conversions. With an example, the formula is:

A – New customers (1)
B – Total users (10)
C – Average lifetime value ($100)

Monetary Value = (C/B) x A

In our example, the monetary value = (100/10) x 1. Therefore, we would assign the monetary value of $10 for each of our customer conversions.

4. Add Up Your Social Media Benefits

The next phase of calculating your ROI for social media involves adding up the total benefits incurred from each of your social media platforms. If you struggle with math, use the Google Analytics tool to avoid confusion in creating spreadsheets that measure total profits from every single media account. You’ll then be able to correlate that data with your total monetary value for those conversions to better understand your social media benefits.

When measuring your total benefits, you’ll have to multiply your monetary value by your number of conversions.

For our example with a monetary value of $10, imagine you had 1,000 customers view your video posted on Instagram. Your total benefits for this social media channel would be assessed at $10,000. Use this technique to measure the benefits for each platform before calculating the total sum benefits for your company’s marketing efforts.

5. Quantify Your Social Media Expenses

Before you can arrive at your ROI of social media, you need to assign a dollar amount to the money you’ve invested into marketing your company in social networking. In this calculation, make sure you include the cost of creating the social media account as well as promotional fees accrued over time. If you’ve spent money to hire employees for maintaining social media pages, multiply the total labor hours by your hourly wage to calculate labor costs.

Maintaining a report of total expenses paid for social media will work in your favor for measuring your total profits earned and ROI. For example, let’s imagine that you spend $200 in promotional fees and paid staff $50 per hour for 300 hours to maintain your Twitter page. These would add up to a total of $15,700 spend on the Twitter channel. Continue with this process until you have made a chart of your costs for each platform and a grand total for all social media marketing.

6. Carefully Examine Your Results

Finally, compile the financial data earned from the fourth and fifth step to consciously measure your ROI of social media for every channel. All you need to do is take your total profit, subtract your costs, multiply by 100, and divide by your costs.

For instance, imagine that your company reaped $25,000 in benefits from Facebook and spent $20,200 in expenses. Following this simple formula, you’d discover that your company has a 23.7% ROI from Facebook.

Possessing a clear record of ROI for each social media channel will help you make strategic marketing decisions on which platform to focus on for more profit. If you notice a specific channel lacking in performance, you could also make changes to boost its potential revenue. Moving forward, you’ll know which social media accounts you should invest the most in for improving your company’s overall bottom line.

Final Words

Creating a strong online presence is imperative to ensure your potential customer base can easily find you. Being active on social media will likely drive larger amounts of traffic to your company’s website or blog than other marketing tools. The more visitors you have, the more profit you’ll receive for a higher conversion rate. Visitors can be converted into loyal customers who will stick by your company and refer others in the future.

But, you can’t simply surf through the Internet and maintain social media pages without knowing if your marketing efforts are paying off. No matter how difficult the process of measuring your ROI for social media may be, it’s helpful for knowing what is working for your site and what could use improvement. Now that you know your return on investment in social media, your business will make well-informed marketing strategies for stimulating flourishing growth.


How To Calculate Social Media ROI

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