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Measuring your Social Media ROI

Measuring your Social Media ROI

Because it is now recognized that social media can bring leads and generate revenue you decided to launch a social media strategy? You probably also discovered that it has a cost. The time spent to learn how to use it, to create your strategy and creating content… As any other manager you probably have one question in mind “Am I throwing money out of the window?”. Are you part of the 72% of marketers that don’t calculate the ROI of their social media activities? [1]

Product Managers helps you determining you Social Media ROI.

The principle

Whatever the activity is, the classical formula of Return on Investment is:

ROI formula

ROI (Return On Investment)=(Gain from investment-Cost of Investment)/(Cost of Investment)

Seems simple? But the problem is: what are the gain and the cost of your Social Media Strategy? How do you determine the numbers you will use?

Product Managers chose to introduce you the method given by Kipp Bodnar and Jeffrey L. Cohen in their book “The B2B Social Media Book”:

roi formula 2

ROI= (Total Lifetime Value (TLV)-Cost of Customer Acquisition (COCA))/(Cost of Customer Acquisition (COCA))

Before starting

A ROI is the gain you made compared to the costs for a precise period. You need to define it. For that, choose one adapted to your sales life cycle.

For your starting point, take the beginning of your presence or of a campaign.

You need to calculate the ROI of each social network you use. The good news? Every social network gives you data. The bad one? In the first place it could be long. But, this is not difficult! And the most important: you will be able to know which one gives you the best returns and focus on it.

Cost from Social Media: your cost of customer acquisition

Of the two dimensions of ROI, this is maybe the easier to determine. You should gather the information on what you spent for Social Media. Ask help to everybody in your company.

Cost of Customer Acquisition=Salaries (net salary+overhead cost)+Technical costs (computers,servers,licenses,services fees…)+Others (training programs,ads fees…)

This list is not exhaustive. The only tricky point to evaluate may be the salaries. For that you have to know precisely how much of their time your employees spend for your Social Media strategy. Then, you account for their salaries in due ratio.

Gain from Social Media: the total lifetime value

This is where everything goes complex! Usually, when you discuss Social Media results you talk about followers, mentions, fans, visitors, clicks… But how much do you earn through all of this? How much is a follower worth?

First step: Determine the Total Lifetime Value of your customers.

According to the book “this is the average amount of revenue paid to a business by a customer over the lifetime of the relationship”.

In other words it is: Average sale amount ×Average number of sales

Second step: Collect the data.

You need to know how your customers found you (and if social media played a role or not). A question as simple as: “Where did you hear about us for the first time?” is effective.

Conclusion

Far from being a certainty, this calculation can enhance the animation of social networks and the control. This gives an image that can be refined over time.
In most companies, we can, in addition, make a « before / after » . This will determine the pattern of change of sales pipeline and sales patterns from the time when social networks were use.  This will enrich the understanding of the effectiveness of these new channels .

So take your spreadsheets! To give visibility makes more efficient use of marketing tools ………

Sources

[1] « 2011, Lenskold Group Marketing ROI and measurement study »

« The B2B Social Media Book, Become a marketing Superstar » , Kipp Bodnar and Jeffrey L Cohen, 2012

« Social Media ROI, Managing and Measuring Social Media efforts in your organization », Olivier Blanchard

« ROI of Social Media: myths, truths and how to measure », Dr Nathalie L. Petouhoff, community ebook of Radian, 6 of February 2012.

Catherine Kokoreff
Margaux Parent

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