Yes, you can find social media ROI with ACTUAL MATH

First, keep in mind that social media ROI (Return On Investment) is not the goal. It is a measure of efficiency. The purpose of ROI to help make decisions. Focus on business goals first (are you generating the leads you want, getting the shopping cart check-outs, etc.) then use ROI to fine-tune your strategy.

Second, remember that social media ROI is comparative. If you know your ROI on Facebook is 25%, Is that good or bad? What are you comparing it to? Twitter? ROI over time?

Ok, now that that is out of the way, time for some math! It all comes down to one simple-looking-but-actually-pretty-difficult-to-calculate formula:

ROI = EARNED minus SPENT divided by SPENT

 

The First Step is Pretty Easy: TIME

You’ll need to set a specific amount of time to use as a basis for which to calculate social media ROI. If you have a set cycle such as recruiting for an annual event, go with that. If you don’t have a specific time for your sales cycle, a reasonable amount of time to use is 2x your sales cycle to account for outliers. A sales cycle is the average length of time from the first time a potential consumer sees your ad, until the time that they purchase.

 

The Second Step is Much More Tricky: CALCULATE WHAT YOU EARNED:

This is why it is so hard to calculate the social media ROI of your efforts. Because you HAVE to know how much you’ve earned. You’ll need to talk to your CFO to get this. If you act as the CEO, CFO, and CMO in your business, it’s time to put on your CFO hat for a while and get to the bottom of these numbers. Using the sales funnel, get to the value of a prospective customer. Here’s how:

 

CUSTOMER LIFETIME VALUE (minus) CUSTOMER ACQUISITION COST = NET CUSTOMER VALUE

NET CUSTOMER VALUE (times) SALES CLOSING RATE = NET DEAL VALUE

NET DEAL VALUE (times) DEAL CLOSING RATE =SALES QUALIFIED LEAD VALUE

SALES QUALIFIED LEAD VALUE (times) QUALIFIED RATE = MARKETING QUALIFIED LEAD VALUE

MARKETING QUALIFIED LEAD VALUE (times) PROSPECT QUALIFIED RATE = PROSPECT VALUE

Tip: You can put the PROSPECT VALUE into Google Analytics, and all of a sudden, Google Analytics turns into a financial forecasting tool!

The Third Step: CALCULATE WHAT YOU SPENT

Amount spend comes in two forms:

Hard dollars ($ spent on ads + any $ paid to an ad agency to manage your social media) + Soft dollars (your time, calculated by an using your hourly rate)

 

Now, enter your numbers and…..

ROI = EARNED minus SPENT divided by SPENT

TA-DA! You’ve just successfully calculated the ROI of your social media efforts!

 

Now for some follow-up questions:

Q: What is a good ROI?
A: Anything above zero. Remember, ROI is not a goal; it should be used to measure how efficient you’re being.

Q: How to improve ROI?
A: Earn more or spend less
Side note: It is rarely worth your time (soft dollars) to do organic (no ad budget) social media

Q: Once you know your ROI, what do you do with that information?
A: Make decisions:

• Do you want to post more/less frequently on specific channels?
• Do you want to spend less time on content calendars?
• Is calculating social media ROI the right comparative measure to help us make these decisions?

Common misconceptions:

• ROI does not equal Return on Ad Spend.
• ROI = (earned-spent)/spent—It answers the question, “What is the cost of profit?”
• Return on Ad spend=earned/spent—It answers the question, “How efficient is the ad spend.?” It does not take into account opportunity costs, time, etc.

Now that you’ve successfully calculated social media ROI, let’s visit three times you SHOULD NOT worry about ROI on social media.

If you’d like to learn more about this social media ROI, please reach out to the NewPoint team. Are you interested in more food marketing topics? Visit our Food for Thought page or check out NewPoint’s Patrick Nycz’s book: Moving Your Brand Up the Food Chain.