Social Media Campaigns – Calculating the ROI

‘’The ROI of Social Media is that Your business will still exist in 5 years’’ –

(Erik Qualman)

Increasing cost pressures coupled with intense competition for customer wallet share have put further pressure on marketing budgets. A recession or a slowdown brings down the hammer on marketing budgets and it is the first one to come on the radar for rigorous monitoring. Assumption being that such a practice leads to a more justifiable use of the scare resource and a firm therefore tries to extract the maximum out of every dollar spent. This is a regular story with conventional media and same applies for its counterpart social media as well. There is always this debate as to how to calculate the returns of investment for social media and hence justify the spending.

You may consider sales figures in conventional –assuming that the campaign has had the incremental sales effect- to calculate ROI, but how do you go about doing the same for social media, considering the campaign could be running parallel to a conventional campaign and hence the chances of incremental sales attribution could be really difficult. How to consider the likes, the followers or the comments made, hits on your website etc. are some of the pertinent questions which demand attention to arrive at a conclusion.

Is the ROI Calculation Method Really Different for the two?

In reality however the method is no different from the conventional media ROI calculation; cost and revenue hold the fort for social media as well.  The difference being in terms of the primary revenue driver for social media compared to a conventional one and the cost/revenue items considered. Social media is primarily engagement driven and works towards increasing your revenue. A campaign may not turn out to be a successful one, if you are not able to gather the required amount of engagement, which in turn would lead to lower revenue. In social media you increase the ROI by improving the revenue and not by reducing the cost. You may get lower prices for social media initiatives compared to the conventional one, but that shouldn’t be the decision criterion. You are better off sticking to conventional media if costs are the pain point.

It’s really about the Thought Process:

Social Media requires an engagement driven thought process and not a cost reduction one. You might end up damaging your brand’s reputation or spending exorbitantly high, if low costs are a primary driver for you and not engagement. Apart from the revenue driver aspect, the cost/revenue items change for Social Media ROI calculation and rest of the process remains the same. For instance, if you take number of ‘customers who visited the showroom’ as a factor to calculate revenue in conventional media, you would have its parallel as ‘average number of Facebook interactions’ in social media. Following example to illustrate the point further:

                  ROI Calculation – Social V/S Conventional Media
    Conventional Media               Social Media
    Costs (In Rs)            Costs (In Rs)
Salary of the Marketing Team 125000 Salary of the Social Media Marketing Team (Monthly, in Rs) 20000 125000
Ad Cost on TV-prime TV 300000 Cost of Shipping 500 120000
Print Ad cost 60000 Cost of Packaging per 5 tablets 300 14400
Point of Purchase Material Cost 70000 storage Cost per tablet and other costs 100 24000
Total Cost 555000 Total Cost 283400
   Revenue Items    Revenue Items
No. of New Inquiries 1000 Hits on the website 4000
No of leads converted 200 Average Percentage of Facebook interactions (of total website hits) 50% 2000
Price of the Tablet 4000 average percentage of repeat visitors of the above 30% 600
Total Revenue 800000 average percentage of visitors who bought the product online (only repeat visitors, first time visitors didn’t purchase) 40% 240
ROI Calculation =(Revenue-Cost)/Investment 44% Tablet Price 4000
Total Revenue 960000
ROI Calculation =(Revenue-Cost)/Investment 239%

As is clearly evident, the calculation method is very similar and the items considered are in fact a parallel to conventional media. The real difference is in terms of the engagement, which is being depicted by the percentage of visitors who visited the website after having the interaction at Facebook. It’s significant to note that the revenue is a direct function of this value. Revenues risk plunging if interactions move south and hence the engagement levels go down.

A Six Point framework to help you demystify the ROI calculation for social media:

  1. Set Targets:  The first obviously is target setting. What is that you wish to measure? Your revenue and costs figures would finally be a product of the targets set. Targets should be set in line with the concept of user engagement. Measure engagement, which is the factor driving revenue. Monitor metrics such as Number of clicks on the Facebook page, No. of comments made, tweets, re tweets on the topic, how many users accessed website using link provided on Facebook etc.
  1. Track Conversions: Second step would be to track the metrics set. Online tools like Google analytics come in handy while tracking these metrics. Regular monitoring of these conversions allows changes in the overall campaign strategy if at all you feel the need to do so. ‘Website Traffic’ is an example of a metric.
  1. Assign Monetary Value to each metric: You could either use historical data for a similar campaign run in the past or use a guesstimate. For instance, average cost per click, average percentage of repeat visitors who bought the product online etc.
  1. Measure Benefits by Channel: how many visitors and from which channel- Facebook/Twitter etc. – is the key question here. This would be useful if you are having a multi-channel strategy. For instance, data from you tube, twitter, Facebook etc.
  1. Determine Total Costs: You add up all the total costs. This is very similar to the conventional media method. Only the items differ
  1. Analyze results and Improve: You may feel the need to redesign websites, links, posts etc. to generate more traffic on the site or attract more comments. You would get this insight post data analysis

ROI calculation in Social Media then is a matter of understanding the similarity rather than the difference. The only difference is in terms of the primary ROI driver in both the cases. For conventional media, it is awareness and then action. For social media, it is engagement and then action. Social Media revenue is primarily engagement driven and work by improving the return part of the equation rather than the cost. Firms and Managers need to understand this basic aspect and need to include this understanding while making ROI calculations for the same. As firms allot bigger portion of their marketing budge to social media, more and more mangers and firms could face this issue and a little effort towards understanding the workings might be the difference between a failed and a successful social media campaign.

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How one should calculate ROI of Social Media Campaign?

Return on investment (ROI) is a commonly used business metric that is used to check the efficiency of a business initiative. Like any other operations and marketing campaigns it can be applied to Social Media campaigns too. It basically calculates the profitability of an investment or effort compared with its original cost.

The method is –

ROI = (Gains from Investment – Cost of Investment) / Cost of Investment

Cost of Investment encompasses every penny that directly or indirectly goes into the business initiative. Thus for social media it will be consultant’s fee, costs associated for buying accounts on internet, costs of software and tools, costs involved in shipping goods purchased because of social media, any other cost involved in fulfilling a transaction which happened because of social media campaign.

Gains are direct or indirect monetary returns which happened only because of social media marketing campaign.

It should be noted that any cost or any profit which could have occurred even if the social media campaign in discussion did not happen, should not be considered for computing ROI.

It is usually feasible and easier to break the cost and returns in a specific time frame by averaging out over that period. For example, it will be easier to study expenses and revenue under various heads per month by calculating average values over a month. Month in this example is a feasible time frame for which data is directly available and it’s more or less repeatable. Other time frames like quarters, year can be considered if that is feasible.

Sometimes the returns or benefits are not tangible nor direct i.e. their monetary benefits are long term and cannot be computed directly. It is best to decide some baseline to translate these benefits to sales or other monetary gain over the long term. Then these monetary gains can be averaged on a feasible time frame as discussed above. Some examples of the intangible benefits are –

Increased traffic to website
Increase in number of online conversations having positive connotation to your product
Increased references to your company vs. your competitor
Increased number of people bookmarking your website
Increased number of people posting to your blog, Facebook wall or Twitter

For calculating the returns, the key is to find out the total transactions (indirect too) which contribute. And what are the monetary number associated with them. By simply multiplying the number of transactions with monetary values give the total return.

Costs are fairly simple to calculate if we follow the strict rule of isolating all the costs involved which are happening because campaign is in place.

Thus, once cost and returns are clear ROI can be computed using the formula mentioned above.

HOW SHOULD ONE CALCULATE THE ROI OF SOCIAL MEDIA CAMPAIGN?

In my earlier posts, I have been talking about social media trends, different social media campaigns, some of the best and worst social media campaigns of India, but never discussed how these brands measure the success of social media campaigns. Of course there would be some ways, in which companies define their social media campaign strategies, goals and ROI.

There are hundreds of different ways to measure social media, which makes it kind of difficult to wrap your mind around. To help with that, social media metrics can be broken down into three different categories.

  • Quantitative Metrics: These are the metrics that are data-intensive and number-oriented. You can really get overloaded with different metrics here, so the trick is to pick the key metrics that most influence your business and not get bogged down with the rest. Those metrics might include unique visits, page views, followers, demographics, frequency, bounce rate, length of visit or just about any other metric that’s specifically data-oriented.
  • Qualitative Metrics: These are the metrics that have an emotional component to them. For example, if 75% of the people who mention your product online call it “cheap” and only 25% call it “inexpensive,” that’s a qualitative metric that has an impact on your business. There are several companies that provide in-depth analysis of the qualitative metrics online. Some of these include RapLeaf, Nielsen and Adobe Online Marketing Suite.
  • ROI Metrics: In the world of social media, all roads should lead to ROI. After all, during business hours, social media isn’t just about being social, is it? We’re doing it to make money. And if you track what percentage of people you converted from a prospect to a customer on your e-commerce site, or how many people you converted from a prospect to a client on your B2B website, then you’ll be able to measure the success of your social media campaign on an ROI basis.

In any marketing campaign, first thing any business head or CFO asks from the marketing department is ROI. Let’s look at some of the ways ROI of social media campaigns is calculated.

DEFINE BUSINESS GOALS & CONNECT WITH SOCIAL MEDIA ROI

The first step involves setting social media goals that complement existing business and departmental goals. If you have set a specific number of leads you’re trying to attain this quarter, set the number of leads you want to specifically be driven by social media. For example – If one of your goals is to increase landing page conversion by 10%, ensure that you’re tracking the conversion rate of people who land on the page through social channels. If your goal is to increase unique page visits, make sure you have necessary tracking codes installed in each of your site pages.

To demonstrate social media’s value, you need to measure social media ROI as it relates to your broader business goals.

Key examples of social media metrics to track include:

  • Reach
  • Site traffic
  • Leads generated
  • Sign-ups and conversions

SELECT SOCIAL MEDIA TOOLS TO MEASURE CONVERSION AS DEFINED IN BUSINESS GOALS.

Once you’ve established your social media goals, you’ll need to identify and implement the tools and processes required to measure the ROI on your social media. This may involve adding tracking codes to URLs, building custom landing pages, and more.

There are a variety of social media analytics tools which service to track the diverse metrics you are after. Here are some to consider:

Google Analytics: Track website traffic, on-site conversions, and sign-ups originating from social media campaigns.

Hootsuite Analytics: Hootsuite offers a variety of analytics tools to help you track your reach, conversions and more. A few noteworthy examples are:

  • uberVU via Hootsuite will help you identify your share of voice within your industry on social media, your reach, sentiment around your brand and much more.
  • Custom URL parameters allows you to track which social networks and social messaging did or did not drive traffic to your site, blog or landing page.
  • Hootsuite Analytics Reports offer quick snapshots of your reach through metrics like follower growth, total daily URL click-through and per-post stats for Facebook, Twitter and more.

MONETIZE YOUR CONVERSIONS & CALCULATE ROI

Using the analysis, historical data, goals defined, and engagement level, actual conversions can be calculated by different analysis. In case of non revenue generated conversions, a monetary value can be assigned to each of the conversion. Hence, this is the most important step, as each conversion and goal has to be assigned a monetary value to calculate the return / revenue from the social media campaign.

Now use the return calculated from the above step to calculate ROI from the formula –

ROI = 100 * [ ( Revenue – Cost ) / Total Investment ]

Now, using the above formula, you can access the actual ROI of the social media campaign.

Calculating ROI of a Social Media Campaign.

Measuring ROI of a Social Media Campaign.

 

All business be it small or big have brought into the idea of social media marketing. Social media has provided unique and creative ways to reach out to your current and potential customers.

However qualifying the returns on your investment in social media is still a difficult topic to address. The spending on social media is increasing continuously and businesses have to find out ways and means to calculate ROI in order to justify the increased spends on the same.

 

The first and the foremost step involves identifying and fixing social media marketing goals that are in line with your existing business and departmental goals. If you have set a specific number of “visits to the store” you’re trying to attain this quarter, set the number of “visits to the store” you want to specifically be driven by social media. One needs to audit existing social media performance to establish appropriate goals for improvement.

 

Some of key examples of social media metrics to track include:

 

  • Extended Reach of the brand
  • Total Site traffic
  • Leads generated
  • Sign-ups and conversions
  • Revenue generated

It’s important for social data to be relevant to stakeholders within your organization, not just social media practitioners. Tying social media to the big picture by linking it to organizational and departmental goals will help you achieve that.

 

Once we have established our social media goals, we need to identify and implement the tools and processes required to measure the ROI on the social media campaign. This may involve adding tracking codes to URLs, building custom landing pages, and more.

There are a variety of social media analytics tools which service to track the diverse metrics you are after. Here are some to consider:

Google Analytics: Track website traffic, on-site conversions, and sign-ups originating from social media campaigns.

Twitter Analytics: Helps u track and catch up the tweets happening on the network.

Hootsuite Analytics: Hootsuite offers a variety of analytics tools to help you track your reach, conversions and more.

Using the tool picked up above, it’s time to add in the social media accounts you’re going to track and the items you want to track for it. For example, you may want to track:

 

  • Newsletter audience growth
  • Twitter audience engagement
  • LinkedIn reach and activity
  • LinkedIn demographic details about your audience
  • Keyword search usage

There are many reasons and ways to measure the ROI for your social media campaigns. Not only does it highlight the value of your work, but it can also give you an opportunity to reassess your marketing efforts and adjust accordingly.

 

By constantly re-evaluating, you’ll only continue to improve the work you do, so that when you’re asked to justify your social media efforts, you can. 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.

How should one calculate the ROI of social media campaigns?

No longer can Social media marketers shy away from putting a dollar value to the customer engagement that happens on social media. It is high time they put a number to the returns on their social media campaigns. It is important to have a ROI calculation in place before they can advocate investments on social media.

However, ROI calculation is not as simple as it seems. Calculating returns or quantifying the ‘customer engagements’ and ‘higher brand awareness’ is not easy.Moreover, the numbers need to be pulled out from various sources – blogs, social media sites, browsers companies and even their own servers have to be analysed thoroughly to ensure companies have the required numbers first to get to the measurement part.

The Marketing Plan should cover all aspects of Social Media strategy; right from where the money is going to be invested to how we are going to calculate the returns. Companies should essentially look at the following steps towards this –

Define the campaign goals.

What does the company ultimately want the social media campaign to do for them? Is it making the customer purchase something online, register or signup for a newsletter, spend time on the website, share or follow or like, view content, etc.

Track the interactions

This involves using Google Analytics and a host of other services that can be done at offsite (Facebook, Twitter, etc.) and/or onsite (at the client side or server side) depending on the need and budget.

A lot of metrics can be collected and analysed to know the success of the campaigns.

  1. Traffic – Number of visitors to the website
  2. Reach – Number of people the campaign reaches. The more the number of fans, followers or group members, the larger is the reach
  3. Leads – Number of potential customers or users that show interest or can be targeted depending on the action taken
  4. Customers – Number of leads that become actual customers
  5. Conversion Rate – Ratio of actual customers to the number of visitors or number of people reached by the campaign.

The conversion rate is the success rate that highlights the number of people that perform the actual action intended by the company (as defined in the first step – defining campaign goals)

Calculate Returns

This can be done by calculating the increase in sales or customers and assigning a monetary value to either of them. Calculating the sales brought in by each social media platform is relatively easy. Alternatively, if a customer’s life time value is known along with the number of new customers added, then the total value or returns of the social media campaign can be calculated.

Calculate Costs

Add up all the investments/costs such as people costs, agency costs, etc., per platform to come up with the total cost of the campaign

Calculate ROI

ROI = (Returns-Costs)*100/Costs

ROI for each social media platform can be calculated separately to know the efficiency of each platform. This can help the Campaign Manager or Marketing Manager to allocate further investments depending on the success rate of each social media platform

To conclude, calculating ROI on the social media marketing is an important step whose details need to be thought through during the planning stage.  It might be difficult to pin down the exact benefits of a social media strategy. However, it is often possible to measure certain aspects of social media ROI for specific campaigns. Additionally, companies should also take a more holistic look, that justifies the spend on the social media campaigns and helps in knowing the efficacy of each dollar invested.

How should one calculate the ROI of social media campaigns?

So, Social media is about Customer Engagement and not about the company’s performance goals such as ROI, Market share, Revenues – correct? Well, Yes and No. Although, it has been proven that Social media is most effective as a medium of customer engagement than as a medium of generating sales for the company, ROI is something that marketers cannot wish away. Even if they do, the CFOs will not let them. So is it really important to calculate the ROI of Social media campaigns and if yes, how do you calculate the ROI?

From a marketer’s point of view, the answer to the first part is analogous to answering whether it is important to calculate the ROI of keeping a restroom functional in the company!!! We know that it is useful and necessary and don’t need to or cannot be quantified absolutely accurately. Despite that, the marketers have to provide some quantified estimate of what return the social media campaign will bring to the company. ROI for Social media campaign is calculated is absolutely the same way it is calculated for any other project or investment. The difference though is that every social media campaign would have its own set of cost and value parameters. The question to answer then would be how to measure each of these parameters accurately and ascertain that our assumptions about quantifying them are correct. You need to calculate the overall costs including aspects such as salary of social media team, cost of shipping a product for customer trials as part of social media channel, depreciation costs if any in the overall process, cost incurred by any other department in facilitating the social media campaigns etc. Similarly, on the revenue front, you need to be able to prove that a particular sale is the result of the social media campaign. For example, a customer’s choice of buying your product may not be the result of the very first interaction he has with you on a social media platform. At the same time it could be heavily influenced by his circle of friends interacting with you on social media platforms. Another example could be about measuring repeat customers who first purchased your product due to your social media campaign. Such customers should still be part of your ROI calculations when they make subsequent purchases. So, the challenge is about tracking and measuring the sales that are resulting from your social media campaigns.

The ROI calculations for Social media campaigns are still grounded in concepts of finance and economics and therefore there is no special way to calculate the ROI in social media any differently from that of conventional investments. The increased revenues from Social media campaigns are a result of customer engagements. Firms must understand that Social media campaigns release the bottlenecks in the sales funnel leading to more revenues. The concept of “Source credibility” plays a big part in it where the customer is more likely to buy your products if they hear good things about it on social media platforms from their own friends, rather than hearing it from your salesperson’s or marketer’s mouth. They are less skeptical about your product when they are recommended by their own friends. Another point to understand is that to have a better ROI on social media, you need to focus on increasing the Revenue (numerator) than worrying about the investment (denominator). Social media campaigns provide a good ROI because a social media campaign triggers much more customer-interactions than conventional campaigns would do for example a television advertisement. To estimate, if the number of customer interaction for an ad on TV would be 5, it could easily be 50 on a social media platform. The customer-interactions lead to sales and this huge difference between customer interactions on conventional mediums and social media is what brings in a lot of revenues leading to better ROI of a Social media campaign.

Calculating Social Media ROI “NO Escape”

1) Connect Your Social Media ROI Back to Your Business Goals

The first step involves setting social media goals that complement existing business and departmental goals. If we have set a specific number of leads we’re trying to attain this quarter, set the number of leads to specifically be driven by social media. If one of our goals is to increase landing page conversion by 10%, ensure that we’re tracking the conversion rate of people who land on the page through social channels. Audit existing social media performance to establish baseline targets, then set appropriate goals for improvement.

The brand awareness created by social media—seen in vanity metrics including “likes” and “+1s” and “Retweets”—is valuable, but it is not enough. only 34% of businesses feel that their social strategy is connected to business outcomes. To demonstrate social media’s value, we need to measure social media ROI as it relates to your broader business goals.

Key examples of social media metrics to track include:

  • Reach
  • Site traffic
  • Leads generated
  • Sign-ups and conversions
  • Revenue generated

It’s important for social data to be relevant to stakeholders within organization, not just social media practitioners. Tying social media to the big picture by linking it to organizational and departmental goals will help us achieve that.

Categories of Social Media Measurement

There are hundreds of different ways to measure social media, which makes it kind of difficult to wrap our mind around. To help with that, social media metrics can be broken down into three different categories.

  • Quantitative Metrics: These are the metrics that are data-intensive and number-oriented. You can really get overloaded with different metrics here, so the trick is to pick the key metrics that most influence your business and not get bogged down with the rest. Those metrics might include unique visits, page views, followers, demographics, frequency, bounce rate, length of visit or just about any other metric that’s specifically data-oriented.
  • Qualitative Metrics: These are the metrics that have an emotional component to them. For example, if 75% of the people who mention product online call it “cheap” and only 25% call it “inexpensive,” that’s a qualitative metric that has an impact on business. There are several companies that provide in-depth analysis of the qualitative metrics online. Some of these include RapLeaf, Nielsen and Adobe Online Marketing Suite.

Social media now holds a place alongside print and broadcast as a major, essential marketing channel for businesses. As such, social media now should be held to the same standard as those channels: your social media ROI needs to contribute to your bottom line.

To prove that your social media investment is truly warranted, you need to track how social is influencing every interaction you have with your clients. The following explains how to measure social media ROI for your business, in 4 easy steps.

2) Select Social Media Analytics Tools To Measure ROI

Once we’ve established our social media goals, we’ll need to identify and implement the tools and processes required to measure the ROI on social media. This may involve adding tracking codes to URLs, building custom landing pages, and more.

There are a variety of social media analytics tools which service to track the diverse metrics we are after. Here are some to consider:

Google Analytics: Track website traffic, on-site conversions, and sign-ups originating from social media campaigns.

Salesforce: Add Salesforce tracking codes to the links you share on social networks. When paired with marketing automation software like Marketo, we’ll be able to track sales leads back to specific campaigns or social messages.

Hootsuite Analytics: Hootsuite offers a variety of analytics tools to help track , reach, conversions and more. A few noteworthy examples are:

  • uberVU via Hootsuite will help identify share of voice within industry on social media, your reach, sentiment around your brand and much more.
  • Custom URL parameters allows you to track which social networks and social messaging did or did not drive traffic to your site, blog or landing page.
  • Hootsuite Analytics Reports offer quick snapshots of your reach through metrics like follower growth, total daily URL click-through and per-post stats for Facebook, Twitter and more

3) Calculate Social Media ROI

Once we’ve set goals and chosen your social media analytics tools, it’s time to actually track social media ROI. The ability to track should be built into everything we do on social media, so we’re never left scrambling to try to prove the success of a campaign.

Creating analytics templates will allow to track desired metrics without having to build out custom reports for each campaign. These reports will also present the data in an easily digestible way, allowing us to simply and effectively share your ROI on social media with higher-ups in the organization.

Checking various social media metrics frequently, often daily, to ensure that social media goals are being met. The lifecycle of social media campaigns is often very short, so we need to stay on top of the data as it happens. Choose a timeframe that works , and stick to it..

4) Adjust to Improve

Once identified what works and what doesn’t work on social, it’s time to adjust strategy. The point of tracking social media ROI isn’t just to prove social campaigns are valuable, it’s to increase their value over time.

Due to the short lifecycle of social media campaigns, a failing campaign should be changed and improved as soon as possible. Social media is never static. To meet social media ROI goals, we need to constantly update and adapt strategy ,taking into account the analytic data we are tracking.

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