HOW TO: Calculate the ROI of Your Social Media Campaign
Written by Jamie Turner of BKV Digital and Direct Response. He is also the co-author of “How to Make Money with Social Media” now available at fine bookstores (and a few not-so-fine bookstores) everywhere.
First the bad news: If you’re going to calculate the ROI of your social media campaign, you’re going to have to know math. That may come as a disappointment to people who thought social media was only about accumulating Twitterfollowers or monitoring Facebook “Likes,” but it’s true. The future of social media is about math, metrics and monetization.
The problem is that most companies aren’t doing an effective job of measuring the value of their social media campaigns. In fact, a recent surveyby Econsultancy found that 47% of the companies it surveyed said they were “not able to measure” their campaigns and that “the jury is still out” on the value gained from their social media investment.
If you’re one of the people who isn’t measuring your social media campaigns on an ROI basis, you’re setting yourself up for failure. Here are some tips, advice, and a little bit of simple math to get you on the right path to ROI success.
Understand the Value of Your Social Media Campaign
According to the Direct Marketing Association, if you run a direct response campaign and spend $1, you’ll typically generate $10 or more in return. They know this because they’ve been tracking the transactional data from direct mail, paid search, direct response TV and other campaigns for more than 50 years.
But what if you’re new to social media or new to the world of direct response metrics and don’t have that data or experience? What should you do then?
Fear not. There’s a solution. It involves understanding the 3 categories of social media measurement as well as a simple formula that will help you calculate the ROI of your specific campaign.
The 3 Categories of Social Media Measurement
There are hundreds of different ways to measure social media, which makes it kind of difficult to wrap your mind around. To help with that, social media metrics can be broken down into three different categories.
Quantitative Metrics: These are the metrics that are data-intensive and number-oriented. You can really get overloaded with different metrics here, so the trick is to pick the key metrics that most influence your business and not get bogged down with the rest. Those metrics might include unique visits, page views, followers, demographics, frequency, bounce rate, length of visit or just about any other metric that’s specifically data-oriented.
Qualitative Metrics: These are the metrics that have an emotional component to them. For example, if 75% of the people who mention your product online call it “cheap” and only 25% call it “inexpensive,” that’s a qualitative metric that has an impact on your business. There are several companies that provide in-depth analysis of the qualitative metrics online. Some of these include RapLeaf, Nielsen and Adobe Online Marketing Suite.
ROI Metrics: In the world of social media, all roads should lead to ROI. After all, during business hours, social media isn’t just about being social, is it? We’re doing it to make money. And if you track what percentage of people you converted from a prospect to a customer on your e-commerce site, or how many people you converted from a prospect to a client on your B2B website, then you’ll be able to measure the success of your social media campaign on an ROI basis.
Break Out Your Thinking Caps for Some Math
The most important formula in social media is yourCustomer Lifetime Value (CLV). In a very basic sense, Customer Lifetime Value is the amount of revenue a customer will bring to your company over the course of their lifetime with your brand.
So, for example, if you’re a lawn care company and you know that a typical customer spends $80 per month with you and that the average customer stays with your company for 3 years, then your Customer Lifetime Value would be $80 x 12 months x 3 years = $2,880.
Once you know your CLV, you can decide how much you’d like to invest to acquire a customer. This is called your Allowable Cost Per Sale. Many people use 10% of their CLV as a starting point for their Allowable Cost Per Sale. In the example above, your CLV is $2,880 and 10% of your CLV is $288, so your Allowable Cost Per Sale is that number: $288.
Putting Customer Lifetime Value (CLV) to Work
YouTube channel –- a bit of work, but also not a big problem.
You’ll want a mobile application, since prospects and customers are beginning to expect them. And you’ll want to develop a monthly e-newsletter with lawn care tips to stay in front of prospects and new customers. (Yes, I consider e-mail marketinga social media tool.)
The most important part of the campaign, however, is a series of landing pages on your website designed to capture prospects and help convert them into paying customers. The landing pages will be designed specifically around the social media campaign, and they’ll need to have Google Analytics, Eloqua or Adobe Online Marketing Suite installed so that they can track traffic and conversions.
The key point is that all of your social media programs –- Facebook, Twitter, YouTube, etc. –- should drive people to the landing page on your website where you can convert them from tire kickers (prospects) to paying customers.
Looking at the program outlined above, it’s easy to see how quickly your $288,000 social media budget can get used up by Facebook, Twitter, YouTube, mobile applications, e-newsletters and landing pages on websites. All that said, it’s very realistic to assume that a campaign of that magnitude would generate 1,000 new customers each year. Better still, it may generate 1,100 new customers or even 1,200 new customers.
Remember, all you have to do is to generate 1,001 new customers in order to march into your CFO’s office and show them that social media can provide a positive return-on-investment.
See? Math isn’t that scary after all.
The Bottom Line
We’ve covered a lot of ground here: the three categories of social media measurement and the single most important formula in social media. But the bottom line is that, as businesspeople, we don’t use social media to be social, we use social media to grow our business. And if you use the program outlined above, you’ll be able to prove the value of social media on a campaign-specific, ROI basis.
Good luck. And keep me posted on your success stories. I’d love to hear more about how you’re using social media to grow your sales and revenue in the comments below.
[Sent from Ralph Paglia’s iPhone]
Director – Digital Marketing
ADP Dealer Services