How To Measure Social Media ROI

social media roi dollarThe number one thing about ROI is that it is measured in dollars (or in euros or any other currency you might prefer). Wikipedia tells us that:

In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.

Check out the related post: Social Media ROI Will Become Important. Until now people have experimented with low budgets and without very specific goals. The bigger budgets will bring an need to show return.

This means that whatever non-monetary goals we might achieve, we have to translate them into dollars. The basic business metrics you should measure are:

  • Number of transactions
  • Number of customers
  • Number of new customers
  • Revenue
  • Profit
Check out the related post: Social Media ROI Backwards (for B2B). “…If you have thousands of followers on social networking sites then the obvious question comes up. How do we get money out of it?”

Get these numbers tracked before you do anything else. You probably already have a specialist for this job, she’s called accountant. But the thing is, that for most of us, our social media activities influence these metrics only indirectly. Some of our social marketing goals may be:

  • Website visitors
  • Leads
  • Brand awareness
  • Newsletter sign-ups
  • Facebook fans
  • Blog comments
  • Social mentions
  • Visitor satisfaction index
Social Media ROI book Social Media ROI: Managing and Measuring Social Media Efforts in Your Organization
Use this book to bring true business discipline to your social media program and align with your organization’s goals. Top branding and marketing expert Olivier Blanchard brings together new best practices for strategy, planning, execution, measurement, analysis, and optimization. You will learn how to define the financial and nonfinancial business impacts you are aiming for–and achieve them. Practical solutions from structuring programs to attracting followers, defining metrics to managing crises. This book will help you gain more value from every dime you invest in social media.

Now, the trick is to find the connections between social results and dollars earned. Start with the simplest of correlations. Here are just a few examples:

How is the number of your monthly website visitors related to revenue. Segment that and tie website visits to revenue from online and offline segments. Segment yet again and find the most effective online revenue drivers. What you want to know is if site traffic increases X% then revenue goes up how much?

Find out if the customers who are your Facebook fans make purchases more often. Check if the Facebook fans are making larger transactions than average. What you want to know is if your Facebook’s fan-base grows X% then what’s the corresponding increase in frequency of transactions.

Start to monitor the social chatter and tie the number of mention on the internet to changes in sales volume. Segment that and find out what channels have the most impact on the bottom line.

If your sales are mostly online then it is easier to measure all those metrics. When you are operating offline then you have to conduct customer surveys and ask specific questions to figure out why they are doing business with you. You can also implement various incentives to track people from online to offline. For example we have done this for our client by giving Facebook fans special deals that can be used offline and then measuring the results of those activities.

After you have collected these data for some time, you will be able to make pretty good predictions how different social media activities influence you cash flow. A word of caution, don’t stop experimenting. Use 5-10% of your marketing budget for experiments and you will be ahead of the pack.

And, of course, make note of your spending on customer acquisition and establish a base-line. Include all marketing spending. Make note of how much is spent on different channels online and off. Separate the parts that are hard to measure (new logo, upgrading content management system, etc.).

ROI is about the R. Return. No return, no ROI or more precisely negative ROI (ROI = (return – investment) / investment.). One million Facebook fans won’t make any difference if you don’t know how to turn them into paying customers. From our post Social Media ROI Will Become Important:

Consistency, predictability and repeatability are important when dealing with ROI. Experiment with small budgets. Weed out money losers and channel the funds to profitable activities.

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Image credit foxumon

Priit Kallas

Priit is the founder and CEO of DreamGrow Digital, an internet marketing and social media company. With his 20+ years internet marketing experience he is Helping companies to understand and use the digital marketing to reach their target audiences. He has spoken at hundreds of seminars and conferences on different aspects of internet marketing. Priit is also the organizer of Digital Elite Camp, a leading traffic and conversion event.

11 Responses

  1. Deepak Gupta says:

    Alejandro/Priit,

    Funny enough, I had the same problem with a few clients – non-corporate ones of course. Perhaps set the expectation that in your industry, the conversation rate is normally x%, but I can increase that by doing certain things. If they don’t get it, start using dating analogies like of how many numbers you get, do you actually call and turn into a date. Most people equate that very quickly into the sales/marketing cycle. 🙂

  2. Priit Kallas says:

    Alejandro, I would show then the steps between interest and sales against sales lead and sales. This should bring out the longer funnel and lower lead to sale conversion.

  3. Alejandro says:

    Yes ROI is very important and distinguishing what is relevant information is even more so…

    I am working with a client who seems to think that leads of interest are the same as leads to sales.

    How do I persuade some one is not familiar that this general interest email response to sales leads response are not the same.

    Lastly understanding your sales funnel can help you better understand the ROI.

  4. Priit Kallas says:

    Thanks for the comment, Deepak! Great point, whereever possible use targeted landing pages or microsites. This way people will not wander off and are more focused.

  5. Deepak Gupta says:

    Great advice and methodology; however, have you considered incorporating landing pages with each social media element with a call to action and lead capture/generation/nurturing?

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