Posted 03.22.2020 by Meghan Crawford
Social Media ROI is broken, but you can fix it.
When someone asks, “what’s the ROI of our social media”, it’s important to understand why they’re asking.
ROI is a simple formula but a complex problem.
On one hand, it’s a straightforward equation: What was our financial gain from the financial investment we made?
On the other hand, you’re opening a can of worms.
And so the thought spiral begins…
To make it a little easier, we’ve developed a three step process that works for every type of brand – yes, even B2B brands.
We’ll dig into best practices below and explain the implications of each option.
ROI can be a confusing, often misused term. The whole investment part tends to bring financial gains to mind. Traditionally, this makes sense. But when it comes to organic social media marketing in your organization there are different ways to interpret ROI.
The standard ROI formula looks something like this:
Amount Gained (Profit) – Amount Spent x 100 = ROI %
This formula starts to fall apart unless you’re dealing in money on both ends – which is often just not the case with social media.
Social media ROI isn’t always measured in dollars and cents. And because marketing tactics can vary so much from business to business and platform to platform, it’s hard to determine a single ROI benchmark that works for everything across the board. Instead, you need to operate from an expanded definition of ROI.
Let’s break it down and define the various components, shall we?
How do you define “return” and “investment?”
We’ll start by defining the “return” part of ROI. It can mean one of a few things:
Return is the value you got back from social media. There are 3 ways to define what people mean when they ask for a return.
1) Return = Dollars: The most straightforward interpretation of return is monetary. Return measured in revenue or profit is universally respected in the business world. It’s easily calculated in e-commerce businesses, direct/performance marketing programs.
For example, generating 10% month-over-month growth in new customer revenue.
👍Pro: It makes sense for everyone in the organization. It aligns marketing teams with sales.
👎Con: It requires a keen understanding of revenue attribution. It may favor marketing efforts with short-term effects versus long-term impacts.
2) Return = Marketing Impact: Your return can also be measured through marketing metrics. With this model, you are justifying marketing expenses with marketing measurements instead of the exact business outcomes. Rather than a direct correlation to revenue, you are using approximations, or shifting the conversation entirely.
For example, generating 10% increase in website visits.
👍Pro: Easier to measure.
👎Con: Distances marketers from the actual business growth.
3) Return = Business Impact: Your return can be traced to a strategic business priority outside of marketing and sales. Social media is commonly characterized as a marketing channel but it supports other departments, too. Your most important KPIs may differ from another company. Generally, you can bucket social media-driven business impacts into the following categories:
You can also consider a blend of multiple answers as your return.
👍Pro: Social media is aligned from the top down.
👎Con: It can be equally difficult to translate social media efforts to other business metrics.
Next, let’s take a look at the “investment” bit.
Investment is the value you put into your social media.
1) Investment = Dollars: Money spent on social media related expenses like ads, assets, humans, and software. Again, this is pretty straightforward. Your calculation includes hard and soft costs.
2) Investment = Effort & Time: Your time is a precious resource. The amount of effort your team spends working on social media activities could be translated into hourly costs. It isn’t always expressed that way, however.
In marketing agency partnerships, time is commonly translated into dollars: your agency’s social media campaign may have required an investment of 100 billable hours, and 100 x $125 = $12,500.
Your in-house marketing team can calculate its own cost, too. In a simple scenario, a dedicated social media manager would use 100% of their resources on social media initiatives. According to Glass, the average salary for a social media manager is around $55,000, plus benefits and overhead. By breaking down their salary into an effective hourly cost you can account for the investment of each activity.
Once you factor in shared resources, approval time, and meeting costs, it can get complicated fast.
With an understanding of your true investment, you can start to calculate opportunity cost. Investing your personal time editing social media content may have taken 10 hours. But it also represents an opportunity cost of 10 hours not doing something else.
Over the course of a month, what did the investment in updating YouTube titles generate in return versus an investment in another channel? Or another project?
As you can see, this expanded definition of ROI is more comprehensive than just dollars in, dollars out
Your company might define ROI as any combination of the above.
Testing a new channel?
20 monthly hour investment of company time in TikTok vs. the 1,000,000 impressions in earned reach it generated over 3 months
Launching a new effort?
$2,500 spent on your paid social recruitment campaign vs. the potential $25k gained from the capacity created by your new fire
As Christopher Penn points out in his Social Media Examiner interview, it’s appropriate to present social media ROI differently to different people. That means ROI is likely presented as attributed dollars for the CFO, and as a selection of marketing KPIs with the CMO.
After defining what ROI means to those who ask, decide how you’re going to measure it.
One of the most common issues with social media ROI is the lack of a proper scope.
When you can accurately define the scope of measurement, you’ll be able to make more informed decisions about which programs were successful and what to do to keep the ball rolling.
Here are a few of the different ways you can measure the ROI of social media from easy to hard:
You can measure the success of a social media effort by examining the results of a group of activities with a related purpose.
To measure the ROI of a social media campaign, you will evaluate the impact generated from a series of coordinated social media activations. Your campaign may include a range of activities like paid ads, content production, and giveaways.
Examples of social media campaigns and measurements include:
Difficulty level: Easy
You can also measure your ROI by examining all the paid and organic campaigns you’ve run on a single channel.
Measuring by channel can give you a big picture look at the impact you had based on the resources you invested. This can be useful for proving the value of a brand presence on that channel, or when performing an audit of the channel to identify new opportunities.
With a channel approach, you can compare the value created on one platform to another by evaluating the same metrics.
Difficulty level: Medium
To accurately measure blended ROI, you’ll want to look at all paid and organic social media efforts over a defined time period.
This approach makes most sense when you’re asked to justify the value of an entire social media program.
Consider both the cost and outcome from every Facebook ad, every retweet, every Instagram post—combined.
This model is easiest to use with two types of businesses:
As you approach a blended ROI measurement model, there are a few sources that can help:
Tracking your key metrics on a weekly basis is one great way to keep your marketing efforts agile. But that’s not the best approach for reporting on social media ROI. There are too many day-to-day and week-to-week changes at a micro level. It’s sort of a “forest for the trees” situation.
Instead, consider measuring social media ROI on a monthly, quarterly or annual basis. When you choose to measure ROI depends on the situation.
Measuring one month typically isn’t “big picture” enough to understand the impact of an entire program, but it is useful for paid social media campaigns.
Measuring month-over-month metrics empowers you with information to adjust targeting, find top-performers, scale up the spend, or start over.
As a recap, here’s when you should measure social media ROI on a monthly basis:
✅ Use with paid social advertising campaigns
✅ Use with e-commerce and direct sales businesses
Quarterly reporting empowers you and your team to make informed decisions when planning for the next quarter. Learn what you should stop doing, what you should keep doing, and what you should start doing.
✅ Use for comparing one social media channel with another channel
✅ Use for ongoing social media campaign initiatives
✅ Use with businesses that generate revenue from leads and long sales cycles
It’s often hard to see the impact of your social media efforts in the short-term. Measuring annually can help you get a clearer idea of big picture metrics and plan effectively for the next year.
✅ Use for comparing one social media channel with another channel
✅ Use for blended social media ROI
✅ Use with businesses that generate leads
Certain social media campaigns will have a built-in end date. After wrapping up the campaign, you’ll want to measure the effects of your efforts, whether they lasted two months, two weeks, or two days (flash sale, anyone?).
✅ Use for specific social media campaign initiatives tied to events, launches, or seasons
By using the above steps, you should be able to calculate ROI in a way that makes sense for your unique situation as a company. This includes being able to
The only thing left is to put it all together.
Make sure to check out our other articles (some of these are B2B-focused but packed with great, actionable tips for any sector):
Still have questions or looking for some more personalized recommendations? We’d love to hear from you! Drop us a line or schedule a strategy call. 🚀