An In-Depth Guide on How to Calculate the ROI of a Social Media Campaign

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Question — Do you know how to calculate the return-on-investment (ROI) of your social media campaigns? Here’s another question — If your CEO or CFO walked into your office tomorrow and asked if your investment in social media was paying for itself, would you be able to provide the answer?

If you don’t know the ROI of your social media campaigns, you’re not alone.  While most businesses understand the importance of generating a positive ROI with their social media campaigns, a recent social media survey by Oracle indicates that only 10% of the businesses surveyed can actually tell if their social media campaigns resulted in increased revenue (see graphic above).

Why Don’t More Businesses Calculate the ROI of Their Social Media Campaigns?

What happens for many businesses is that they go through something called the Social Media ROI Cycle, which is covered in-depth in an article I wrote for Mashable.

In a nutshell, the Social Media ROI Cycle happens in three stages. The first stage is the Launch stage where organizations rush to get their social media campaigns up-and-running quickly. Typically, they create a Facebook page, a Twitter page, a Pinterest Board and a LinkedIn Company page very rapidly without thinking about their goals or their strategic approach.

The second stage of the Social Media ROI Cycle is the Management stage. In this stage, organizations re-visit their social media campaigns and realize they need to formalize their goals and their strategic approaches. (Ideally, they would have thought about goals and strategies before launching their campaigns. Unfortunately, most businesses rush to launch their social media campaigns first without thinking about goals and strategies.)

During the second stage, companies formalize the metrics around their social media campaigns. This includes tracking Facebook Likes, website visitors, Twitter followers and other quantitative metrics. As we’ll discuss in a minute, these metrics are almost meaningless if you don’t also track your social media ROI.

The final stage of the Social Media ROI Cycle is the Optimization Stage. Most companies don’t reach Stage 3 of the Social Media ROI Cycle because it involves tracking social media metrics while also doing A/B split testing to see which campaigns performed the best. The companies that do reach this stage ultimately test their way to success by dropping the campaigns that don’t work and keeping the campaigns that do work.

Take a look at the chart below and ask yourself where you are in the Social Media ROI Cycle. Are you in Stage 1, Stage 2 or Stage 3?

Image of Social Media ROI Cycle

No matter where you are in the chart above, you’ll want to be sure you’re measuring the ROI of your social media campaigns. Surprisingly, calculating the ROI of a social media campaign is actually pretty simple, especially if you’re handy with some basic math. What follows is an in-depth guide on how to do the math to calculate the ROI of your social media campaign. If you follow the steps, you’ll be able to start tracking and measuring the effectiveness of your campaigns right away.

An In-Depth Guide on Calculating the ROI of Your Next Social Media Campaign.

You may already know about Customer Lifetime Value (CLV), but if not, here’s a quick rundown.

Customer Lifetime Value is the amount of revenue a typical customer will generate for a company during the customer’s engagement with your brand. Suppose you own a lawn care business. Your typical customer spends $80 per month and stays with your company for an average of 3 years.  Based on that information, you can use use the following equation to determine the CLV:

$80 per month      x      12 months      x      3 years      =      $2,880     =      CLV

This would mean that each new customer is worth $2,880 to your company. In other words, every time you acquire a new lawn care customer, you know that, on average, you’ll generate $2,880 in revenue from that customer over the course of 3 years.

How to Determine Your Social Media Spending Based on Value of New Customers.

If you know that every new lawn care customer will generate $2,880 in revenue the next logical question is, “How much should I spend in order to acquire that new customer?”

That number is called the Customer Acquisition Cost (CAC) and a good rule of thumb is that your CAC should be about 10% of the CLV. In the example above, 10% of the CLV ($2,880) is $288. In other words, you can spend $288 in marketing to acquire a new lawn care customer because every new lawn care customer will generate $2,880 in revenue over the course of his or her engagement with your brand.

Of course, if you only spend 5% (or $144) and you’re able to acquire a new lawn care customer for that amount, you’re a hero. But using the 10% formula (or $288) is a great place to start as a rule-of-thumb.

Testing the Success of Social Media through ROI.

Now, imagine that your lawn care business has gone national. Your marketing budget is $2.8 million, which brings in 10,000 new customers every year. You know that your $2.8 million marketing budget brings in 10,000 new customers each year because your tracking your spending and comparing it to the number of new customers you acquire each year.

If your social media budget comprises 10% of your total marketing budget (i.e., if your social media budget is $280,000), then your social media campaign should be generating 10% of your total new customers. In other words, your total spend is $2.8 million which generates 10,000 new customers each year. 10% of that spend is devoted to social media, so your social media campaigns should generate 1,000 of the 10,000 new customers you acquire.

Does that make sense? Great, let’s keep going.

You’re probably already familiar with the hub-and-spoke system, which places your landing page at the hub (or center) of a wheel. Your Facebook page, Twitter campaign, Pinterest Board and YouTube channel are the spokes of the wheel which are all intended to drive prospects to your landing page.

Image of Social Media Hub-and-Spoke

Once those prospects get to the landing page, you convert a certain percentage of them to customers.

On average, you might convert 1 out of every 100 visits to the landing page into a customer. So, with a conversion rate of 1%, you’d need to drive 100,000 visits to the landing page in order to get 1,000 new customers.

We’ve covered a lot of concepts above, so here’s a recap of the math that we’ve discussed:

Total Marketing Budget: $2.8 million

Social Media Marketing Budget: $280,000

Customer Lifetime Value: $2,880

Allowable Customer Acquisition Cost: $288

New Customers Needed for a Positive ROI: 1,000 (or more)

In a nutshell, if you spend $280,000 developing and running an extensive social media campaign and that campaign drives 100,000 visits to your landing page, and you convert 1% of those visits to new customers, you’re in great shape because you generated 1,000 new customers at a cost of $288 per customer. Since $288 happened to be your allowable cost per sale, you’re golden.

See how that all works? It’s like magic!

How to Identify Social Media Leads.

The best way to determine how many customers you’re gaining through social media is to look at the website analytics. Every social media page your company has should direct potential customers to a landing page on your site. By looking at the analytics for that page, you can determine where your customers are coming from and how much they interact with your site once they get there.

Marketing Automation software such as Marketo, LeadLife and Act-On (affiliate links) gives a history for every visitor to your page, allowing you to track both where they came from and where else they have been looking. These software platforms can even generate reports specifically concerning your social media marketing and lead generation campaigns.

How to Improve Your Social Media ROI.

The hub-and-spoke system of analyzing your website can be useful not just for calculating social media ROI but also for determining what social media sites are working best for your company. If a particular network or effort is generating few or no leads to your website, you should probably consider making significant changes to your approach.

ROI for your company’s social media marketing efforts can be measured at any point in a social media campaign. However, success will be most notable once the company has reached the stage in the campaign where its efforts are being optimized for revenue growth, not just a social media presence or even increased website traffic.

Obviously your first step is to establish a social media presence, but the problem for many companies is that they’re still in Phase I of the Social Media ROI Cycle, which is to simply get online and do it now. That approach is a rushed and shortsighted effort with little regard for strategy and planning.

Instead, your company should set up a social media presence with the ultimate goal of generating a positive ROI. This means that, once the accounts are created and the content is flowing, you should focus your social media marketing team on all of the following: content generation for multiple platforms; creative and offer development; quantitative and qualitative metrics; improving conversion; and determining campaign success on an ROI basis.

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Using Metrics to Drive Changes to Your Social Media Campaigns

Different networks are going to have different metrics and different methods of analyzing those metrics, but there are three characteristics that can be determined for almost every network and can help identify areas in need of improvement: page views generated, following/reach, and sentiment.

Page Views Generated:  Each social media profile and every post you publish on it should point your followers to a landing page on your website. If your web analytics reveal that a certain network is generating little to no page views for that landing page, it could be that you need to rethink the content you share.

Make sure your posts are relevant and engaging. Be sure to include calls to action urging viewers to click over to your site, like “Visit our site and…” or “Click here to…” By driving more users to your site, you increase the likelihood of conversion from prospect to customer.

Following/Reach:  Your following reflects the number of users who have willingly subscribed to your content, while your reach reflects the number of users following those users who share your content. Your reach directly affects your following, as you are more likely to gain followers as your reach extends.

Again, make sure your content is relevant and engaging. If it is, users will be more likely to share it with their followers.

You can also alter the timing and frequency of your posts in order to maximize reach. If you determine when during the day and week your followers are engaging with content in general, you can optimize the timing of your posts to increase engagement with your content.

It could also be that you post too infrequently (or even that you post too much!). Altering the frequency of sharing will also help maximize your followers’ engagement with your content.

Sentiment:  Though technically a qualitative metric, it is possible to quantify sentiment toward your company. It requires a bit more time and attention, but you can determine whether a page, a piece of content, or your company as a whole is being referred to in a negative or positive manner. Then, you can make adjustments or address concerns accordingly, improving your company’s quality and credibility in the eyes of your customers.

You can also use the sentiment of mentions to determine what exactly your customers have a problem with. For example, if your new product is being referred to positively only 30% of the time it is referenced on social media, it may be worth it to report those findings to whomever it may concern, whether it involves the taste of the product, its price, or the offensiveness of a recent post.

Increasing Customer Lifetime Value

It’s possible to gain revenue not only through new customers but also through increasing your CLV. By monitoring your customers on social media, you can determine what products or services they want and how you might fit into that in a new way. You can also engage customers in innovative ways to increase the duration of your customers’ relationships with your company. An increase in your CLV over time means a larger budget for marketing, meaning even more new customers gained.

No matter how many page views you get from social media, it is important to convert visitors to customers once they get to your website. Having a good landing page is key, but it goes beyond that. Marketing automation software can help you determine the value of a prospect and make it easier to convert that prospect to a customer during his or her visit.

We’ve covered a lot of ground in this post so there’s plenty to chew on here. If you like what you’ve read, feel free to share it with others by clicking one of the social sharing buttons on this page. Or, sign up for our e-newsletter so you can have posts like these dropped into your in-box.

But most of all, be sure to put everything we’ve talked about here into action. There’s no point in reading a post like this without also taking action. Good luck — and keep us updated on your success!

(Note: Segments of this blog post were included in an e-book I wrote previously for Optify.)

Jamie Turner is the CEO of the 60 Second Marketer and 60 Second Communications, a marketing communications agency that works with national and international brands. He is the co-author of “How to Make Money with Social Media” and “Go Mobile” and is a popular marketing speaker at events, trade shows and corporations around the globe.

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  • http://www.SelfEmployedKing.com/ Mike Kawula

    Slamming Post!

    Love the landscaping example broken down. Just read last night that 80% of SMB’s received customers from Social Media, yet less than 30% have a strategy. Knowing the LTV is huge and thus knowing your business numbers.

    Great Post.

  • http://www.60SecondMarketer.com Jamie Turner

    Thanks Mike. Glad it was helpful!

  • Lisa Goldberg

    Good article. I am currently in stage 3 and am now using the analytics for development amd stratrgy. I also am trying to implement more call to action (ppc, seo, tags etc) into our landing page. The hardest part for me is getting a good web designer to change with me. I almost have to teach myself the programming to get the real time updates that I require. So that is what I am doing. Thanks again for the article. Good info.

  • http://www.60SecondMarketer.com Jamie Turner

    Glad the post was helpful, Lisa! See you again soon.

    Cheers,
    Jamie

  • Tony Dassow

    One of the better articles I have come across on Social Media. You took the extra step to illustrate exactly how it benefits the company. Thanks!

  • Immaculate Kamya

    Great article.

    I agree with Mike SMBs don’t see the relevance in having a social media strategy and aligning this to the overall business strategy. Over and above this, the selection of social media channels is based on where the masses are as opposed to where their audience is and which channel is appropriate for their business.

  • http://www.60SecondMarketer.com Jamie Turner

    Hi Tony —

    I’m so flattered by that. Thank you so much! Honestly, that means a lot to me.

    Cheers,
    Jamie

  • http://www.60SecondMarketer.com Jamie Turner

    I Immaculate Kamya —

    I LOVE what you said — “The selection of social media channels is often based on where the masses are as opposed to where their audience is.”

    That’s brilliant.

    Pretty soon, I’m going to write a post called “Why Businesses Should Abandon Facebook.” Your quote is right up that alley. Thanks for sharing!

    — Jamie

  • Immaculate Kamya

    Hi Jamie,

    I’m honoured. Looking forward to reading your next article.

    :)

    Immaculate

  • Dennis Strong

    There are some usable parts but it seems mostly geared sales and selling. Social media ROI also should include the savings obtained through efficiency of reach. It helps me nurture relationships that improve the value of the services we provide. The long term customers, clients, prospects and associates need multiple channels of communications that are easily accessible.

  • SusieQGuru

    Well Done Jamie..Clear & Convincing… I would like to add that small businesses Now Are Interested In The ROI… so We Have Developed a smart Phone App That Records And Tracks Every Lead To Measure Same..And An SEO Friendly, Mobile Ready CRM Smart Website To Match…Cheers To You!

  • Keith Franco

    Thanks Jamie! This rocks!! Easy to follow and best of all, FREE!!

  • http://www.60SecondMarketer.com Jamie Turner

    Glad it was helpful, Keith!

  • http://www.60SecondMarketer.com Jamie Turner

    Hi Susie — Your smartphone app sounds interesting. Is there a link where we could check it out? Thanks!

  • http://www.60SecondMarketer.com Jamie Turner

    Good point, Dennis. And I agree — this post is mostly about calculating the value of a specific lead, but doesn’t get into the branding value of social media. Thanks for your thoughts.

  • Ivor Fernandes

    Great article. Thanks Jamie. I got a lot of useful information which sometime I take for granted as I try to manage my business.

  • http://www.60SecondMarketer.com Jamie Turner

    Glad it was helpful, Ivor!

  • http://www.socialsinergy.com/ Adam Dukes

    Great post, Jamie!

    I like to educate business owners that social is an excellent customer retention tool. I know, retention is not “sexy” and most business owners focus on acquisition, but I think retention will be important in the coming years. Take care of your people, get them to buy more often (increasing their CLV), do amazing things for them and that can spread, on the social channels, and the new business will follow.

    Again, great breakdown of everything though.

  • Steven W. Giovinco

    Jamie, This is fantastic post! Thanks for the clarity and use of real examples. I’d like to build something similar but geared towards ROI of Online Reputation Management. What happens if negative links show up on the first page of Google, for example, and how this could impact a business in quantifiable ways.

  • http://www.60SecondMarketer.com Jamie Turner

    Hi Adam — I agree with your comment about customer retention. In fact, someday in the future I’m going to write a post called “Yet Another Way to Calculate the ROI of a Social Media Campaign” and it’s going to talk about reducing churn. If you can drop your churn from, say, 5% to 4% via social media, you can add real dollars to your bottom line.

    Thanks for stopping by. Great comment. See you again soon!

  • Leah Layman

    What exactly are the costs involved in social media for a business?

  • http://www.60SecondMarketer.com Jamie Turner

    Hi Leah — That’s a complex question, but a rough rule of thumb is that if you need 1 full time employee for every 100 employees in your company. In other words, if you have a 50 employee company, then 50% of a full time employee’s hours should be spend on social.

    There’s more to it than that, but it should give you a sense of where things should go.

    Good luck!

  • Trenton

    This is an awesome post

  • http://www.60SecondMarketer.com Jamie Turner

    Glad it was helpful, Trenton!

  • http://www.socialsinergy.com/ Adam Dukes

    Absolutely! You make a very good point about just reducing it 1% does add dollars to the bottom line.

    I look forward to that next post about ROI :)

  • SusieQGuru

    Absolutely Jamie….here is it!
    http://www.youtube.com/watch?v=Rx9buAkmtoQ

  • Bentley Group LLC

    Awesome

  • http://www.60SecondMarketer.com Jamie Turner

    Glad it was helpful, Bentley Group!

  • Bentley Group LLC

    Jamie I just rebuilt my website yesterday I’ve tried everything to market my business I’m willing to offer a incentive for your expertise

  • http://www.60SecondMarketer.com Jamie Turner

    Hi — Thanks for reaching out. We do have an agency that works with national and international brands on ROI-based marketing programs. We work on a fee basis as opposed to a pay-per-lead basis, which I think you’re talking about in your comment. But if you want to reach out to me via our website (http://www.60SecondCommunications.com) feel free to connect with us via the contact page. Thanks!

  • Katie

    I work with non-profits and government agencies that don’t have customer’s, per se. They are trying to get public input or attendance at events. With no revenue generated, how can we calculate ROI?

  • http://www.60SecondMarketer.com Jamie Turner

    Great question, Katie. You’re one of those special cases where your objectives are slightly different from the for-profit world.

    In your case, your goal is to generate awareness and drive attendance. Therefore, your best bet is to test your results against previous efforts in order to see if you’re improving.

    If you are, great. If not, then you’ll need to change things. Either way, since you’re not ultimately selling a product or service, you can’t really calculate your ROI in any traditional sense.

    — Jamie
    P.S. By the way, if your goal as a non-profit is to generate donations, then you CAN calculate the ROI. But it looks to me as though you’re not in that category, right?

  • http://blog.wishpond.com/ Krista Bunskoek

    Thanks for putting to ROI of social media into perspective, Jamie.

  • http://www.60SecondMarketer.com Jamie Turner

    Glad it was helpful, Krista!

  • http://www.60SecondMarketer.com Jamie Turner

    Sorry I missed this when you first wrote it, Steven, but your idea sounds great. Fire away. And keep us posted!