How to Calculate the ROI On Your Social Media Marketing

Jan 07, 2014 1:18 PM  By

With most marketers and merchants having social media objectives, yet not quantifying results, there needs to be a relatively easy way to report on social media marketing.

The following is not only about reporting on social media-generated awareness, engagement, sales and ROI, it’s about how to standardize and then compare social media results with other marketing channels.

The primary objective of this article is to help you identify what social media channels do better than your other marketing channels, quantify, compare performance, and help you determine how to allocate resources.

Awareness

Recent surveys indicate generating awareness is the top social media marketing objective for most companies.

Awareness-related tactics include paid and non-paid marketing. I recommend you separate paid social media (Facebook display ads and sponsored posts, promoted tweets, promoted pins, etc.) and non-paid social media in reporting.

Examples of awareness-related tactics include Tweets and Facebook posts. To report on, and compare, I convert social media awareness metrics to Reach (the number of people potentially reached), Impressions (the total number of potential impressions generated), Frequency and Cost-Per-Thousand (CPM) for reach and impressions, which makes possible comparing volumes and cost-efficiencies.

I use a list of social metrics, and cross-reference each to reach and impressions, and calculate frequency and CPMs. For example, Twitter Followers and Facebook Fans = Potential Reach. The number of Twitter Followers times the number of Tweets = Potential Impressions. The number of Tweets = Frequency.

Brand Engagement

As with awareness, brand engagement metrics vary by channel, and may include paid and non-paid tactics. As for awareness, I recommend you separate paid and non-paid social media-generated brand engagement in reporting, for example shares of sponsored and non-paid posts on Facebook.

Examples of brand engagement include Re-Tweets, Facebook Shares, Re-Pins on Pinterest and social media-generated Website visits. It is recommended you report based on volumes and cost-efficiencies, to avoid missing opportunities.

Initially, I recommend you standardize brand engagement reporting across channels, by only breaking-out engagement into 1.) Website visits or 2.) engagement that increases reach, such as shares and re-tweets.

Though a Like may not motivate to the extent a Comment would, Re-Tweets and Shares may reach different numbers of people, and brand engagement reporting can get in-depth with “Conversion Rate,” “Amplification” and “Engagement Rate,” to get started I’ve found it best to start simple.

Transactions

Like other channels, you want to capture the number of orders, sales conversion, revenue and the average order value.

The challenges are accurately reporting on social media-influenced ecommerce transactions, and reporting on social media-generated offline sales. (For purposes of illustration, I will use ecommerce sales.)

Most Web reporting tools default to reporting sales based on “last touch,” transactions are credited to the last channel a visitor visited before purchasing, which can be somewhat misleading.

A prospective customer may be far down the path of making a purchase when they visit the last channel, and last touch reporting doesn’t take into account when the customer first became interested in your brand / products. Specific to social media, when reporting on sales based on the “first touch” it is not uncommon to see significantly more “influenced” sales than reported with last touch. Following are actual results:

  • Facebook; 48% increase in number of reported orders influenced by social media with first touch
  • Reddit.com; 86% increase in number of reported orders influenced by social media with first touch

I recommend you report on last touch, and first-touch or another attribution method, for a more holistic view. To be able to compare channels, you should do this for all your marketing channels.

Costs

I recommend you separate costs / reporting for each social media channel for paid and non-paid marketing.

You may have direct expenses, including advertising, promotions, design / development and social media agency fees, which may be for a specific channel or need to be allocated.

In terms of reporting marketing overheads, most important is being consistent across all marketing channels so you can compare ROI, awareness and engagement efficiencies (CPMs). Since much of social media marketing is non-paid, it is important to capture and allocate overheads, for example if you have a full-time social media manager.

ROI

Calculating ROI for each social media channel is revenue – COGS – direct marketing expenses – allocated marketing overhead / total channel marketing expenses.

As with transactions, you should calculate ROI based on last touch and first touch (or another attribution method).

Calculating marketing ROI from recent test marketing, what I found was “branded searches” on Google generated the most orders, revenue and margin…however ROI on social media channels was best.

By having ROI for all channels, my client will put more resources into social media, since over time it may generate more profit when scaled. He may have missed this opportunity if he only looked at volumes.

When reporting on ROI, I recommend also reporting on awareness and engagement volumes and efficiencies. Though technically not ROI, they are key to measuring the value of social media marketing.

In fact, there are additional social media benefits not even addressed in this article, including significant impact on SEO, word-of-mouth, viral marketing and social commerce.

Calculating The ROI On Your Social Media Marketing

The objectives of this article were to help you identify what your social media channels do better than your other marketing channels, and to help you determine how to allocate resources.

With this information you should be able to standardize, report on and compare social media marketing results, identify what each social media channel does best, and better allocate resources to improve overall marketing results.

Here’s what I suggest you do next:

  1. Compile a list of your awareness and engagement metrics for the channels you use
  2. Standardize the metrics as discussed above in the Awareness / Engagement sections
  3. Cross-reference the metrics to the consolidated standardize metrics (for example, re-tweets as “brand engagement increasing reach”)
  4. Create reports with rows for each social media channel (breaking out paid / non-paid), columns for the metrics above, and formulas
  5. Research reporting tools you may want to use for capturing awareness / engagement results

Paul Becker has held senior DTC, e-Commerce and multi-channel retail roles at ancestry.com, Hasbro and einvite.com. Currently consulting, clients include a $600MM+ multi-channel retailer, $200MM+ ecommerce store, $100MM+ DTC multi-channel marketer and an early-stage ecommerce store.

Paul can be reached at pbecker123@gmail.com. His LinkedIn profile is www.linkedin.com/in/paulbecker/

  • http://www.mcgrawmarketing.com/ patmcgraw

    Paul, great post…filled with practical recommendations and proven techniques. I especially LOVED your comments about running reports based on the original source code as well as the ‘last touch’ source code. (“I recommend you report on last touch, and first-touch or another attribution method, for a more holistic view. To be able to compare channels, you should do this for all your marketing channels.”)

    This is overlooked by so many – but knowing where the lead came from and what the last communication was prior to the purchase are both key factors.

    • Paul M Becker

      Pat, thank you.

  • http://www.ncs.tv/ Dan Auito

    Very well done. It’s one of the hardest things to quantify.

    • Paul M Becker

      Dan, Thank you!

  • rohan goel

    Excellent insights! Your ROI calculations pop up another question: in house team or an experienced partner?

  • seaadams

    Thank you for providing a model for calculating the
    financial ROI of social media in a very easy to understand andstep-by-step
    process which any layman can understand. I can see from your model that
    calculating the financial ROI of social media requires discipline, strategies,
    standard practices and a marketing management system to track and capture the
    required cost and benefit information. I hope you don’t mind if I utilize your
    model in my consulting practice and blog. Thank you again.

    go here

  • http://www.juntaedelane.com/ Juntae DeLane

    Nice article Paul! Goal setting is important. I wrote a similar article outlining 5 quick tips for achieving social media ROI: http://juntaedelane.com/5-quick-tricks-achieve-social-media-roi/

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