Simply throwing money at the problem never all works. All that ends up happening is that you’ll go way over budget and you still won’t have the results you actually want. As with all other forms of business, it is just as important for you to keep close tabs on the performance of your social media marketing. At the end of the day, it really is about the numbers and that’s why the most successful Internet marketers are the ones who are particularly adept at working with metrics and analytics.
They’re the ones who are able to wade through that sea of numbers, unearth potentially lucrative trends, and cash in before anyone else and better than everyone else. This is the same reason why it’s so important to split test your landing pages and keep a close eye on your traffic sources so you know where best to direct your efforts. I need not remind you of the Pareto principle, right?
Simple ROI Calculation
When it comes to calculating return on investment for simpler, more traditional endeavors, the math is relatively straightforward:
(Benefit – cost) ÷ cost = return on investment
ROI is typically expressed as a percentage. So, if we forget about income taxes and fees and other considerations for the sake of simplicity, the ROI when you buy something for $100 and sell it for $110 for a $10 profit is 10%, because (110 – 100) ÷ 100 = 0.10 or 10%. That’s simple enough to understand if you think about buying stocks (again, ignoring fees and such), flipping merchandise on eBay, or whatever else.
Applying to Social Media Marketing
This calculation might be reasonably easy to understand if your marketing efforts lead directly to sales (and you can connect those dots reliably), but how much is a “like” on your post really worth? What’s your rate of return if you gained 100 new followers to your Facebook page? This can feel much less concrete and much more ethereal than investments that only involve dollars and cents, but you can arrive at a reasonable approximation if you’re willing to accept a few assumptions.
After you decide on the goal of your social media marketing — like getting new email newsletter subscribers — and you track how you did on that goal after a campaign, you must then ascribe a monetary value to that metric. More specifically, you’ll typically look at the lifetime value. How much is this new follower worth over the long term?
But for the sake of simplicity, let’s use these hypothetical figures for a one-time benefit:
In this case, of the 500 new subscribers, you can expect about 50 of them (10%) to convert on your offer. Each of those conversions is worth $100 to you in profit, so you have a total profit of $5,000. Subtracting the initial $1,000 cost, you now have a total net profit of $4,000. Divided by your cost of $1,000, you arrive at a ROI of 400%. That sounds like a very successful campaign.
A Worthy Investment
We have to remember that this ROI calculation doesn’t factor in the time and effort that you put into creating, running and managing this campaign, as well as all the work that you put in afterwards, plus the cost of your email list and so on. But this gives you a good point of determining whether your social media marketing efforts are “worth it” compared to other marketing venues or campaigns you may be using.
If you’re interested in learning more about measuring social media ROI or would just prefer to have it explained in a different voice, there are some excellent guides from Buffer, Neil Patel and Sprout Social on the subject. Go check those out and actually put this methodology into practice.