Recently, I wrote about determining the return on investment (ROI) of social media marketing using a traditional sales forecast model. If you have been looking to understand social media ROI, you’ve probably encountered another way to look at ROI using the following mathematical formula:
ROI = (Gain / Total Cost) 100
So, how does one go about concluding the answer to the above? It can basically be broken down into the following five steps.
Step 1: Calculate your costs
For the above equation, your total cost is made up of all the expenses related to a social media program, including salaries, training, the cost of social media platforms and tools, any agency or consultant fees, and your business overhead.
Step 2: Assign a value to a touchpoint
For the gain, you’ll need to assign a dollar value for each incremental customer activity that involves website interaction. If you remember, in my last blog I discussed how to bump up the percentages of confidence that the contact would make it all the way through the sales lead funnel by increasing your number of customer touchpoints. As pointed out by Mo Harake of Kissmetrics, each time you bring someone back to your website, it brings them just a little closer to the sale and assists in eventual conversion. It is equivalent to customers entering your store. Assign a dollar value to these interactions and you can attribute this as dollars accrued towards the gain.
The value you assign to each touchpoint will depend upon your perception of how much it increases the chance of the lead resolving in a win. This is variable number, relative to very specific business parameters.
Let’s look at a webinar for example. Webinars are becoming increasingly popular among B2B marketers with about 62% using webinars as part of their content strategy due to their unique attributes. What value would you apply to a webinar? According to ReadyTalk, between 20% and 40% of webinar attendees turn into qualified leads. They also report that the average cost of delivering a monthly webinar is $11,000 a year, with $915 for a single webinar and social media accounting for about $500 of that. Their calculations assume 50 users convert into a lead through the webinar and that each lead is worth $500 for the company.
- Social media cost of webinar: $500
- Gain: 50x $500 = $25,000
- ROI = ($25,000 / $500) x 100 = $5,000
While conversion rates are important, you also need to bear in mind potential reach. For instance, according to Marketo, social media converts at 1.95% and events convert at 1.48%. However, for the same amount of money spent, you can reach more people with social media. Let’s say you had $1,000 in your marketing budget. You create social media posts for $1,000 that reach 10,000 followers (not a stretch, based on average social followers for B2B companies). For the same $1,000, you could spend it on an event, but only draw 100 people. The post would bring in 195 opportunities while the event would only bring in 1.48.
Step 3: Determine your metrics
To use the ROI equation, you need to count each touchpoint. This is done by determining the metrics you wish to track, which can range from followers and fans to subscribers to video views.
Each touchpoint can be measured through a KPI (key performance indicator). You determine what sort of KPIs you wish to track based on your goals. For example, if your goal is to increase social media engagement with your customers, you’ll want to measure things like shares, comments, retweets, and Likes. If you goal is to increase website traffic, you’ll want to measure URL clicks, web page traffic, bounces, click throughs, etc. If it’s increased brand awareness you’re looking for, watch for follower growth rates and the percentage of change over time in the number of followers.
Determining when a lead becomes a subscriber to a blog, signs up for a webinar, or downloads a whitepaper are some of your most important metrics to track, as these are specific touchpoints to which you can assign real dollar values and compare them against the cost of content creation. Some refer to these as conversions. Social media acts as the audience acquisition tool for these conversion touchpoints.
Step 4: Track your KPIs
Once you’ve determined what to measure, you’ll need a monitoring tool. Google Analytics is a powerful, free tool that may be everything you need to get started. Some of the metrics you can obtain through their tool include:
- Users – number of unique users that opened those pages on your site
- Pageviews – number of pages viewed by a user during a session
- Average Session Duration – average amount of time of each session
- Bounce Rate – percentage of single page sessions that left without further interaction
- Percentage New Sessions – sessions made by new users
- Source – where your website traffic originated from (i.e. Search engine, email link, etc.)
- Entrances – number of times a specific page was the first page viewed in a session
Remember that social media acts as a method of audience acquisition. One of the best KPIs to track to understand the ROI of social media is the source of where the visitor originated. To learn more about all the things Google Analytics can do, check out Google Analytics 101, a step-by-step tutorial and How to Track Conversions with Google Analytics.
Step 5: Calculate your ROI
Once you’ve collected the data, you can use the dollar values you’ve assigned to the touchpoints to calculate your gain. For example, if a customer is worth on average $20,000 ($10,000 sale plus ongoing support over the years worth another $10,000) then assign a value of 1% or $200 to each person that signs up for website updates, 10% or $2,000 for downloads of whitepapers, and maybe 20% ($4,000) for those sign up for a webinar.
Now, apply the math:
ROI = (Gain / Total Cost) 100
If you have already been keeping track of your website statistics, run a post social media campaign comparative analysis to ascertain the ROI of the campaign. It’s also interesting to compare your results with those of others. Let us know how you’ve been tracking your social media ROI. We’d love to hear what you’ve found.