The Social Media ROI discussion has gone through a number of growing pains in the last year. I have spent a fair amount of time discussing the SM ROI evolution and I have come to the point where I think there are three steps that will move the SM ROI to the importance it deserves.
Step 1 – Social Media ROI – understanding
Based on the last year’s back and forth, I think (hope) we all agree on the following:
- ROI is a financial calculation. Social Media ROI is not a stand-in for Return on Relationships, Return on Engagement, Return on Innovation or even Return on Inaction.
- The Social Media ROI can be calculated or at the very least, the ROI can be estimated.
Step 2 –Social Media ROI – calculating current return
Today, we are starting to estimate the return and the Social Media ROI. There are a few different approaches where one approach is to launch your social media campaign and after a period of time, you look at sales data. If you see a bump in revenue at the time of the start of the campaign, you can guess that it could be because of your social media effort.
Another approach, which we are using, is to estimate the return of your social media campaign using off-line and non-social media cost comparables. For instance, if you know that you receive 10,000 page views per month directly linked to your social media campaign, you can estimate the number of banner ads (impressions) that you would require in order to generate the same number of page views. For instance, assume that the average click-through rate is 1%. In order to reach 10,000 page views, you need 1 million impressions. At a cost of $1CPM, your return is $1,000. This return might not sound like a lot but it all adds up.
The important take-away from step 2 is to start estimating your social media campaign return. Based on the return and your investment, you can quickly calculate your Social Media ROI.
Because you can estimate individual returns per return channels (eg impressions, member value, insights etc.), you can maximize your Social Media return in a couple of ways:
- Playing what-if with different sets of criteria per return channel, you get a better feel for your return per return channel and thereby helping you to optimize the return.
- Continue to use what-if games while comparing return channels, you can maximize the total return on all your return channels.
- By entering data on a monthly basis, you get a 360 view on your return, investment and ROI with simple drill-downs for better understanding of your social media campaigns.
Conclusion – as competition heats up, it is imperative that social media agencies and in-house social media groups work really hard to a) measure and estimate the return on social media and b) even more importantly, ensure that they are receiving maximum amount of return on their social media efforts. The return has to be in dollars and cents so that it can quickly be incorporated in a ROI calculation.
If you are interested in learning more about how to calculate the Social Media ROI, feel free to download a light version of our ROI application.
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