Measuring Social Media ROI

Quick, what’s the ROI of email?

How about your laptop, cell phone, or business card?

If you’re like most people, you probably don’t know, and really don’t care. But not having email in your business could do more harm than good. Its “benefit” is not so much a measurement of return but an implicit cost of doing business (and cheap I might add).

Moreover, depending on your role, it also represents “potential.”

Like email, social media also represents potential.  Unfortunately, this view is not shared by people who use the term ROI when talking about social media. Ever since social media came into existence, marketing professionals and business leaders have been asking the “ROI question.”

It’s easy to understand why.  If a business is going to put the time, effort, and attention into social media, it would be nice to think they’d actually get some sales out of it.

In other words, they want to see a return on our investment.

Calculating ROI

A very basic way to calculate ROI is:

(Net Profits / Total Investment) x 100

For example, if you invested $1,000 and received $100 in profits, that’s a 10 percent return on your investment: ($100 / $1000) x 100) = 10, or 10 percent. For marketers, knowing ROI helps you decide between competing alternatives in order to know where to focus your future marketing dollars or resources.

Measuring ROI (a quick example)

In some cases, online marketing can easily be measured for ROI.  For example, take pay-per-click (PPC) advertising.

Keeping things simple, let’s say you pay $0.50 cents for each click from just one keyword using Google AdWords, which generates 200 clicks to your website.

That means, you’ve paid Google $100 in advertising cost ($0.50 x 200 = $100).

Let’s also assume you have an e-commerce website that does a decent job converting traffic into sales.

In this case, from the 200 clicks to your website (via AdWords), 4 people purchased your product resulting in $500 of “make-believe” profit ($150 product price - $25 cost of goods = $125 profit per sale x 4 = $500).

This means your actual post-advertising profit would be $400 ($500 in profit - $100 in PPC advertising = $400).

Still with me?

At first glance, this seems like a small profit. The ROI, however, is great: You’re making $500 in pre-ad profit from just $100 in PPC advertising, a beautiful 500% ROI.

Here is the clincher: that’s just from one keyword.

There are potentially hundreds of relevant keywords that you can bid on to attract potential customers. What happens if you bid on 100 or 200 keywords that also have a 500% ROI?

On the other hand, if the purpose of your website is to generate leads or sign-ups - not sales - you can calculate a rough ROI if you know your cost per lead, closing ratio and avg. value of a new client or customer.

For example, lets say your website generates 3 leads each month. With a cost per lead of $250 and a closing ratio of 17% (1 out of 6 leads) you’re projected to close one new client every 2 months from PPC advertising.

At first glance, $250 seems like a lot to pay for a new lead, but if your avg. value of a new client was $10,000 (or $5,000 averaged over 2 months), your ROI would be great. You’re projected to make an average of $5,000 in gross revenue per month from $750 in PPC advertising, an amazing 667% ROI

Remember, ROI just helps you decide between competing alternatives in order to make better decisions. In other words, they’re only estimates.

Social media is not something you buy

People who use the term ROI think social media is something “static” they buy, set, and forget – like a media buy.

Yes, Facebook and LinkedIn allow you to advertise on their platforms, but companies ahead of the curve really see social media as a part of doing business — a necessity no less important than using email.

But changing an organization’s attitude toward social media from a measurement of ROI can be difficult.  It requires a fundamental change in how they view marketing in a new age.

So how do businesses go about changing their ways? It won’t be easy, but this list may help you get started.

1. Adopt a new mindset

Again, business leaders need to start seeing social media as an inherent cost of doing business, representing untapped potential (again, a cost-effective way of reaching potential customers I might add).

It must start with the leadership of the company and trickle down from there, embedding itself into the very fiber of the organization.

Apple is a classic example.

Steve Jobs inherently understood that marketing was a fundamental part of their business, getting baked right into their products - from design to packaging.

Marketing isn’t any less important than the products and services you deliver or the people who provide them. In other words, social media should not be the frosting you put on top of your business.

It needs to begin at the core of your business.

2. Focus on building an audience

All companies have clients or customers, but the ones leading the charge into the future have audiences.

These companies know something you don’t. In addition to running targeted online marketing campaigns that closely track ROI, they’re also using blogs and social media to cultivate an audience - becoming likeable and trustworthy.

Think like a publisher (or story-teller) and find your audience.

3. Be patient and realistic

The most common mistake we see, and the one that makes people think they can’t measure social media results, is that businesses try to make an instant sale or conversion on a social media platform, like Twitter or Facebook.

In my humble opinion, social media was really never intended to be a main destination or virtual storefront for your business.  It’s not what they were built for and, in most cases it’s inappropriate.

Instead, use social media as “outposts” to share the human side of your company, tell stories, and perhaps start a conversation with people who may eventually become customers or clients.

Remember, social media is not the destination, but a vehicle.

3. Bring them home

Use social media to get attention, showing people you’re likable or trustworthy.

When people are ready to learn more about you, make it easy for them to find their way to an online asset you control — bring them back to a relevant landing page on either your website or blog.

Everything that happens on a landing page can be measured. So you can know precisely how many people sign up to your email newsletter from Facebook, or downloaded your white paper from Twitter.

Landing pages are the key to measuring the effectiveness of what you do on social media. If you’re having trouble figuring out whether your social media marketing is working, it’s usually because you haven’t figured out where you want people to go and why.

The secret is to spend most of your time and energy building online assets that you control.

Forget about ROI

Thinking about the ROI makes business leaders think that social media is some kind of campaign or media buy, where they put money in and hope more money comes out.

Instead, like the “email” analogy, think about how the absence of social media in your organization might be doing more harm than good. Its “benefit” is not so much a measurement of return but an implicit cost of doing business in today’s world.

The real measurement of return lies in the unrealized potential created from changing your organization’s mindset about social media.