Measuring social media ROI can be a daunting task, but not impossible.
Check out these handy formulas for calculating tangible social media benefits – advertising, content, leads,research, support, sales, and more!
My earlier post, "Social Media ROI: How to Define a Strategic Plan", provided step-by-step instructions for mapping out a high-level social media strategy that aligns with business goals.
The latter part of that process (step 6) involves selecting tactics to best achieve the defined goal metrics, in turn leading us to ROI opportunities. Prepare to quantify!
In this edition:
- Social Media Tactic Planning Process
- Simplified Measurement - 3 Core Objectives
- Social Media ROI vs. CBA
- Social Media Tactic Benefits (Formulas)
- Social Media Tactic Costs (Formulas)
- "Social Media, Meet ROI" (Presentation)
Social Media Tactic Planning Process:
- Define important metrics to compare different tactics.
Consider respective scale measurements (1=Low, 3=High, etc.) and weight/importance to aid scoring based on business priorities. (e.g., timing, resources, budget, competitive edge, goal alignment, difficulty/risk, etc.) - Brainstorm tactics that serve both business and user goals.
Use a diverse mix of "mild to wild" options. Tip: Use the Triangle of Relevance Methodology to strategically achieve "magnetic" campaigns. - For each tactic, brainstorm possible implementation outcomes and factors – both good and bad.
(e.g., social shares, web traffic, comments, testimonies, user-generated content, leads, support costs, legal considerations, etc.) - Categorize the list into benefits and costs.
For benefits, align listed outcomes to goals and crosscheck them with high-level objectives like grow revenue, reduce costs, and improve satisfaction. Note: For potential risks, estimate the likelihood of the risk occurring. - Evaluate and compute estimated benefit and cost values.
Tip: Leverage formulas noted below! - Perform Cost-Based Analysis (CBA).
Determine the difference between total benefits and total costs. - Weigh factors and score all tactics to identify and compare top candidates.
Analyze reasons for top scoring. (Be prepared to answer "why" and also look for anomalies in weighted scoring to adjust or investigate further.)
Simplified Measurement - 3 Core Objectives
The toughest part in going through the tactic selection process is often computing benefits and costs. Although marketers agree that lots of social media metrics are available, confusion remains on how to measure the actual benefits.
My advice is to start from these core business objectives: Grow Revenue, Reduce Costs, and Improve Satisfaction. Below I've charted some influence factors and metrics for each. These factors (and any more you can think of) are the gateway to our benefit formulas!
Social Media ROI - Simplified Measurement - 3 Core Objectives (Click Image To Enlarge)
Social Media ROI vs. CBA
Before we jump into the super awesome benefit formulas, the controversial debate of ROI versus CBA needs to be addressed. When it comes to calculating "wins" for campaigns, these two formulas are most commonly used:
Social Media ROI - Cost-Based Analysis (CBA) vs Return on Investment (ROI) (Click Image To Enlarge)
Note: An ROI of 1 or 100% implies you'd get back what you put into it, while CBA, also sometimes known as Cost-Benefit Analysis, has a $0 "break even" point.
Notice how in the examples above, the CBA for two different tactics with very different costs could be the same, while respective ROI sheds further light on the investment effectiveness.
"ROI can only be calculated AFTER the investment has yielded a return. It cannot and must not be estimated beforehand. Ever. Under any circumstances."
- Olivier Blanchard, @thebrandbuilder (Author of Social Media ROI)
ROI is often calculated after implementation. However, you're unlikely to gain management support or choose optimal tactics without some supporting financial metrics. Up-front estimated measurement of tactics is vital to making smart social media decisions. Use Cost-Based Analysis (CBA) – and estimated ROI if needed – during social media tactic planning to:
- Compare Tactics Using a Common Currency
Which social channels/tactics make the most sense for business? - Justify Tactic Spend Feasibility
Is it financially possible/worthwhile to partake in the social media tactic?
"Keep in mind that the calculation for return on investment, and therefore the definition, can be modified to suit the situation – it all depends on what you include as returns and costs. The definition of the term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one 'right' calculation."
- Investopedia: Definition of 'Return On Investment - ROI'
Note: "Social Media ROI" is a buzzword phrase that loosely translated answers if the tactic can deliver tangible value. It could reference ROI and/or CBA formulas because both provide useful perspectives. Calculations done beforehand are simply estimates. Don't worry about the semantics. The important part is to actually do the measurement, understand the calculation, and select accordingly.
Fortunately, calculated benefits and costs easily plug into both CBA and ROI formulas!
Social Media ROI Formulas
(Click the heading links to jump down to that section.)
Social Media ROI Formulas (Click Image To Enlarge)
SOCIAL MEDIA TACTIC BENEFITS
Enjoy these 14 formulas and examples to aid your computations! (Be sure to replace example placeholder numbers with your own values or industry-relevant estimated percentages.)
ASK YOURSELF:
How much would it cost if you had to pay for the equivalent achieved by social media? What tangible outcomes related to the sales funnel will be impacted?
1) Advertising Value - Online Social Mentions:
GOAL: Grow Awareness, Reduce Ad Costs
_____(#) brand/product online social mentions, pins, etc.
X _____ (CPI) equivalent display ad impression costs
______________________________________
= $ Display Ad Impressions Value
(CPM, or cost per 1,000 impressions, could also be used.)
Example: Estimated 150,000 social impressions at display ad costs per impression (CPI) of $0.008 (or $8 CPM) = $1,200 equivalent display ad impressions value
2) Advertising Value - Social Web Traffic Referrals:
GOAL: Drive More Web Traffic, Reduce Ad Costs
_____(#) social referral clicks to website
X $_____ (CPC) equivalent display or social ad costs
______________________________________
= $ Social Ad Value
Example: Estimated 150 social referral clicks to the website at social ad costs of $3.99 per click = $1,197 equivalent social ad value
3) Advertising Value - Search Web Traffic Referrals:
(e.g., social reviews or comments ranking in search results)
GOAL: Drive More Web Traffic, Reduce Ad Costs
_____(#) search referral clicks to website
X $_____ (PPC) equivalent search ad costs
______________________________________
= $ Search Ad Value
Example: Estimated 500 search referral clicks to the website at search PPC ad costs of $2.99 each for the respective keywords = $1,495 equivalent search ad value
4) Advertising Value - Social SEO Improved Search Rank:
(e.g., social reviews, photos, or comments influencing search rank)
GOAL: Drive More Web Traffic
( _____% new organic search CTR − _____% old organic search CTR)
÷ _____% old organic search click-through rate (CTR)
X _____(#) monthly organic search volume
_____________________________________
= Additional Organic Search Referrals
Example: Increasing search rank from position 4 at 8.2% CTR to position 2 at 14% CTR with an average monthly search volume of 120,000 = 84,878 more search referrals
Check out Optify's Organic Search Click-Through Rate (CTR) Study for insights on search rank CTR differences to estimate benefits. (i.e. CTR: Position 1 @ 36.4%, Position 2 @ 12.5%, Position 3 @ 9.5%.) For ROI calculations, use your actual CTR values available via Google Webmaster Tools.
5) Advertising Value - Social Influencer Online Mentions:
GOAL: Grow Awareness, Reduce Ad Costs
_____(#) social influencers
X _____(#) average social network reach
X _____(#) notable online brand mentions
X $_____ paid spokesman or special guest costs (e.g. radio, TV, or direct mail endorsements)
/ _____(#) ad network reach or volume
________________________________
= $ Paid Endorsement Ad Value
Tier paid spokesman fees by respective social influencer levels. Document tiers with labels (e.g. A-Level, B-Level, etc.) to make historical tracking easier. Social network reach and ad reach should ideally be equivalent since pricing tiers may vary. (This formula adjusts for network reach differences assuming endorsement costs are the same regardless of ad volume.)
Example: 5 industry influencers (B-level) with an average social network reach of 5,000 making 10 notable brand mentions at an equivalent paid spokesman (B-level) cost of $1,500 each with an ad network reach of 10,000 = $37,500 equivalent paid endorsement ad value.
6) Advertising Value - Social PR Mentions:
GOAL: Grow Awareness, Reduce Ad Costs
_____(#) event-related online brand mentions (e.g. announcement, product release, etc.)
X $_____ equivalent press event cost
/ _____(#) average brand mentions from press event
_________________________________
= $ Press Event PR Value
Example: 50 event-related online brand mentions (not fuelled by a paid press event) at equivalent press event costs of $800 that yield an average 40 brand mentions = $1,000 equivalent press event PR value
7) Content Value - User-Generated Content (UGC) Articles:
GOAL: Grow Awareness, Improve SEO, Aid Conversion (Social Proof), Reduce Content Costs
_____(#) online stories or articles with significant brand focus or mention
X $_____ equivalent content creation cost
_____________________________________
= $ Article Value
Tip: Tier creation costs by content quality (e.g., length, sentiment, images, uniqueness) and/or Domain Authority levels.
Example: Estimated 5 stories discovered at an equivalent content value of $350 each = $1,750 equivalent content article value
8) Content Value - User-Generated Content (UGC) Photos:
GOAL: Aid Conversion (Social Proof), Reduce Photography Costs
_____(#) user-generated brand photos
X _____% photo shoot quality
X $_____ equivalent photo shoot total costs
/ _____(#) average photos from photo shoot
_______________________________
= $ Photography Value
Example: Estimated 80 brand-specific unique user-generated content (UGC) photos discovered at 70% photo shoot quality at an equivalent photo shoot total cost of $12,000 that yields an average of 30 quality photos = $22,400 equivalent photography value
9) Content Value - User-Generated Content (UGC) Videos:
GOAL: Grow Awareness, Aid Conversion (Social Proof), Reduce Video Costs
_____(#) user-generated brand videos
X _____% brand-produced video quality
X $_____ equivalent brand-produced video total cost
___________________________________
= $ Video Value
Be sure to include resource time, equipment rental, shoot fee (e.g. location), and editing for total video production costs.
Example: Estimated 3 brand-specific user-generated content (UGC) videos discovered at 50% brand-produced video quality at an equivalent brand-produced video total cost of $10,000 = $15,000 equivalent video value
10) Research Value - Social Insights:
GOAL: Market Research, Improve Customer Satisfaction, Reduce Research Costs
_____(#) brand online insights/comments
X _____% focus group insight quality
X $_____ equivalent focus group cost
/ _____(#) insights from average focus group
___________________________________
= $ Focus Group Value
Example: Estimated 150 useful monthly brand insights/comments at an equivalent 90% quality of a paid focus group that costs $3,000 and typically yields 100 helpful insights = $4,050 equivalent market research value
11) Support Value - Online Self-Service:
GOAL: Enable Self-Service, Reduce Support Costs
_____(#) weekly support calls per topic
X _____% calls likely solved by self-service
X $_____ average support phone call cost
___________________________________
= $ Call Support Value
Example: Estimated 1,500 weekly support calls at which 70% could be resolved online via self-service at an equivalent support call value of $6.30 each = $7,056 equivalent call support value
12) Sales Value - Social Leads (One-Time Value):
GOAL: Grow Revenue, Generate Leads, Acquire New Customers
_____(#) qualified online social leads identified
X _____% lead-to-customer conversion rate
X $_____ (AOV) average order value
________________________________
= $ Lead Sales Value (Single Purchase)
Example: Estimated 100 qualified leads routed to sales teams with a typical lead-to-conversion rate of 4% at an average order value (AOV) of $2,500 = $10,000 equivalent converted lead sales value (single-purchase)
13) Sales Value - Social Leads (Lifetime Value):
GOAL: Grow Revenue, Generate Leads, Acquire New Customers, Retain Customers
_____(#) qualified online social leads identified
X _____% lead-to-customer conversion rate
X $_____ (LTV) customer lifetime value
__________________________________
= $ New Customer Lifetime Sales Value
See: How To CalculTate Customer Lifetime Value (LTV).
Example: Estimated 100 qualified leads routed to sales teams with a typical lead-to-conversion rate of 4% at an average customer lifetime value (LTV) of $22,500 = $90,000 equivalent converted lead new customer lifetime sales value
14) Sales Value - Social-Aided Conversion:
GOAL: Grow Revenue, Boost Conversion
( _____% new conversion rate − _____% old conversion rate)
/ _____% old conversion rate
X $_____ average # monthly products sold
X $_____ average product sales value
__________________________________
= Increased Sales Value
Example: Estimated conversion rate increase from 2% to 3.5% with an average 100 monthly products sold at $750 = $32,142 more in monthly product sales
SOCIAL MEDIA TACTIC COSTS
Below are some generic cost formulas for consideration. Assess your situation to incorporate all time, resource (people, supplies, technology), and risk costs accordingly.
ASK YOURSELF:
What are all the factors that will consume time or budget to perform the tactic? What potential risks are involved? What opportunity costs would be given up?
1) Labor:
- Estimated _____(#) internal [ role ] resources at _____(#) hrs/week at a rate of $_____ / hr.
- Estimated _____(#) external [ role ] resources at _____(#) hrs/week at a rate of $_____ / hr.
(Consider consultants, contractors, IT developers/support, designers, copywriters, legal reviews, paid spokesperson fees, etc.)
2) Software / Online Tools:
- Brand monitoring or social listening services at a total of $_______ / year.
- Miscellaneous online accounts/subscriptions/tools totaling $_______ / year.
(Consider social analytics, social sign-on, ratings/reviews tools, YouTube paid account, video editing software, mobile app downloads, image subscriptions, etc.)
3) Equipment:
- Video and webinar equipment and supplies totaling $_______ / year.
- Miscellaneous hardware totaling $_______ / year.
(Consider tablets for live blogging events, smartphones for non-personal social accounts, video cameras for interviews, video or photo shoot staging supplies/fees, etc.)
Note: Equipment cost estimates get a little more complex to quantify if you consider depreciation, lifetime asset value, split allocation over multiple projects, etc. Use your best judgment to decide what's practical to factor in for the cost.
4) Promotional Costs:
- PPC Ads: Estimated _____(#) clicks at $_____(CPC) display or ad costs.
- Emails: Estimated _____(#) emails at $_____ per 1,000 sent plus $______ email provider or creation fees.
(Consider social ads, sponsored tweets, emails announcing social promotions, etc.)
5) Training:
- Estimated _____(#) annual training events for _____(#) resources at $_______ each.
- Estimated _____(#) up-front one-time group training events at $_______ each.
6) Legal Risk:
- Estimated _____% chance of _____(#) legal issues occurring annually at $_______ each.
Note: Opportunity Cost is a complex factor that could also be factored as a cost using the sacrificed tactic's respective CBA over the same timeframe. Keep in mind that the value of another tactic should then also incorporate opportunity costs to be fair. Beware of infinite loop formulas, and cancel out calculations that would apply across the board.
Formula Considerations and Disclaimers...
Estimates must be acceptable. We're not calculating the profit-margin feasibility for a new manufacturing line here. We're estimating numbers to help justify and compare options for economical use of corporate function budgets. The formulas above are samples and not laws of marketing physics. Add and edit the formulas to your heart's desire.
Intangible metrics still have value. Once the customer or public is involved with tactics, a load of intangible factors – potentially good or bad – come into play that are difficult to measure, even as an estimate. If the intangible impact isn't negligible, potentially list these in name as a disclaimer beside calculations for reference.
Computed benefits of some formulas may overlap others. Be mindful of double-counting benefits that overlap layers of the sales conversion funnel (e.g., search rank, search traffic, etc.). On a related note, benefits must be calculated across a consistent timeframe when compared to other tactics. Formulas may need to be adjusted accordingly.
Are You Prepared to Quantify?
Social media measurement is exciting, right? Oh yeah! It's OK to geek-out about it. Don't get obsessed with the numbers though. Be realistic, estimate wisely (borderline pessimistic), and focus on goal-driven action. Remember, none of these calculations matter unless they're aligned to business goals.
YOUR MISSION: Define ROI or quantified business value that justifies use of social media. You now have the methodology to do so. Do you accept?
"I've accepted the Social Media ROI Possible mission. Join me!" « Tweet this!
Social Media ROI - "Mission Possible" Plan:
Three Step Social Media Strategy Goal Planning (Click Image To Enlarge)
- Map a social media strategic plan. (Steps 1-5)
- Brainstorm, compare and select tactics for each goal. (Step 6)
Use social media tactic planning steps above. - Select metrics for each tactic. (Step 7)
Target the most impressive results from formulas above that best align to the goal's KPI metric. - Execute the plan! (Analyze and repeat as needed)
This is one of the most comprehensive articles for measuring social media ROI. I wish to thank Angie Schottmuller (@aschottmuller and Google+) for sharing this incredible arsenal of information.
Courtesy of an article dated February 21, 2013 appearing in Search Engine Watch
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