Social media return on investment (ROI) always comes up when talking to prospective clients. Consequently, questions like what is the real value of a Facebook like, or a retweet always come up. However, when it comes to ROI, “likes” and “retweets” are difficult to quantify because they don’t readily translate into sales. Therefore, the best social media metrics must track to direct revenue or a verifiable lead.
ROI is ((TOTAL REVENUE – TOTAL COST) / (TOTAL COST)) x 100. Clearly, from the ROI formula, we must track revenue generated from a social media campaign. Fortunately, calculating ROI is easy if we are selling a product. For example, I spent $1000 on Facebook ads promoting my new widget. As a result, I made $1300 in widget sales. My ROI is ((1300 – 1000)/(1000)) x 100 or 30% return on investment. However, when we are generating Facebook leads, we need to convert those leads into sales.
Define Your Social Media Goals
The best social media goals require a prospect to do something meaningful like sign-up for a newsletter, submit a contact form, download an e-book, or a whitepaper. Consequently, those actions require the prospect to submit an email address to get what they want. The best practice is to build social media campaigns to track a particular social media goal. For example, creating a newsletter campaign on Facebook, Twitter, and LinkedIn. However, these social media goals generate leads. We will need to covert social media leads into paying customers.
Track and Measure Your Goals
There are many tools available to track social media campaign goals, but nothing is better than Google Analytics; because Google Analytics is FREE.
Now let’s do some simple math. Based on figure 1, you spent $250.00 on our Facebook campaign. We had 600 people click on the ad. Of those 600 people, 275 people completed the form and saw our thank you page. First, we calculate the cost per lead (CPL) = $250/275 = .91 cents per lead. We need to know how many people saw our Facebook ad; this is known as ad impressions. Our ad delivered 5000 impressions to our target audience. Now we calculate our click through rate (CTR). Facebook calculates our CTR. CTR = 600 total clicks/5000 impressions = .12 or 12% Which is really good. A CTR above 3% is good. The final calculation is conversion rate (CR). CR = 275 completed Optin Forms/600 total ad clicks = .45 or 45%. Ready to learn more about setting up Google Analytics?
Getting to ROI
Now that we have some leads, let’s look at the ROI formula again. ROI = ((TOTAl REVENUE – TOTAL COST) / (TOTAL COST)) x 100. We’ll start working those leads hard with our email campaign. To make the concept simple, we will just work with our original 275 leads. Our email campaign is enticing your Facebook leads into paying customers. I’ll mention there are many metrics to consider when evaluating our email campaign. Check out HubSpot’s article on email analytics to get more familiar with email campaigns. For example, our total cost of our email campaign is your Facebook ad spend + our time to create email messages + the cost of our email platform = $300.00. Your hard work won 2 paying customers totaling $800.00 in revenue. Therefore our ROI is (($800.00-$300)/($300)) x 100 =167% for our Facebook campaign.
Interpreting ROI is simple, anything positive is good, meaning we recouped your investment and made a profit. A negative ROI means your investment lost money. In our example, our ROI was 167% meaning for every dollar you invested you made a $1.67! Let’s say, our ROI was 10%, then you made .10 cents for every dollar spent. Likewise, if our ROI was -25%, then you lost 25 cents for every dollar invested.
Calculating social media ROI is simple when you are selling a product that customers can purchase directly from your e-store. If your business is a service, then your social media campaign will generate leads which then will be converted into sales. We are experts at setting up social media campaigns and turning your investment into positive ROI.