Measuring the ROI for social media marketing is tricky, but it's possible if you first have a well-thought-out strategy in place. “Get more sales” is not a strategy, it's the goal for any business and should go without saying. When considering strategy, the brand needs to figure out how it plans to generate the most profits. A brand's profit options include:
- Increase the size of the customer base
- Improve the retention of existing customers
- Increase the frequency of transactions
- Increase the value of transactions
- Reduce the number of returns
Defining the approaches to use is just the start. There's much work to be done in breaking down the top-level strategy into marketing actions. Once this game plan is in place, then social media can be used to assist and implement the marketing strategy. The expected ROI can be determined from the goals.
The first step in calculating the ROI on social is to hammer out the expectations. If the plan is to use social to bring traffic to an e-commerce site, then once social gets a visitor to land it has fulfilled its duty. If the visitor fails to convert to a sale, it might be the site or it might be that social promised something the brand couldn't deliver. For example, if social is to help prevent or recapture bounces, that should be drafted into the strategy.
The next step to calculating the ROI on social is for the brand to clearly identify the ROI on different business activities and events. For example, how much is a click-through worth –- that is, if someone clicks a link we post on Twitter that leads to our Website, how much is that worth to us as a business? If they don’t click, can we find out why, and use that to improve our marketing messaging? How much is knowing the best way to market to people really worth to us? If you could find out exactly what you had to do to close the sale, how much would you pay for that information?
Finally, there are the actual ROI calculations. If the brand assigns a value of $50 to a visitor arriving on its site (derived from the average number of visitors that land before a sale is made, and the value of a sale) and calculates that social needs to bring an additional 200 visitors per month to break even, then if it brings 400 visitors, it has a 100 percent initial value on its ROI, even if the sales are disappointing. It's worth investigating why the extra visitors didn't translate into sales as planned, but unless social was targeting a different market than the strategy dictated, the fault isn't with the social media.
Even after all the planning is done, there are more questions to ask once data begins to arrive, and this is why social media metrics are both valuable and difficult to measure the return on. There is so much information available that it is a challenge to understand which pieces are actually important. This doesn’t even touch on the fact that metrics can also indicate when the assumptions in a strategy are incorrect -- but that’s a whole new post.
So yes, you can always measure the return on investment on social media provided you do your homework first and understand the real value behind your marketing actions and business events.
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— Scott Kinoshita was originally a computer programmer, who retrained to marketing after realizing his big dream was to make online marketing that didn't stink.