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The inner and outer workings of a digital agency

Kritika Tiwary

Feb 13, 2013 / In Online Marketing

How to calculate social media ROI

With an expected increase in online sales up to $9.2 billion by the end of this year, the brands have become more strategic in their approach towards the use of social media for the promotions.

The brands are witnessing customers buying products on the basis of reviews posted on Facebook, twitter or by clicking on the product links posted on these websites. The sentiment towards a brand is getting changed by how a brand handles its social media presence, thus making it a major buying influencer.

The marketers have started focusing on the use of this platform but one question which they need to answer is how should they calculate the ROI for social media.

Calculating ROI is based on a simple calculation of:

Benefits- Cost*100

Cost

The benefits is the revenue generated and the cost is the money invested but in the case of social media the benefits has two parts: tangible and intangible.

Tangible:

- Different types of impressions and the value of those types of impressions

- Clicks to the website

- Increase in attributable sales from the website

- Leads generated from the channel

To attach value to each, you need to try and find equivalents in your existing media plan. Please see some examples below.

MetricEquivalents
Impressions on news feed and retweetsWhats the CPM paid for banner impressions? How does the CTR of banners compare with the eScore (Likes or comments/Impressions) ? If the CTR is similar, then similar levels of CPM can be used.
Clicks to the websiteAverage CPC rates can be used. In case you have reason to believe these clicks are more/less valuable, you can adjust the CPC value to higher/lower than average.
Leads generated from the channelThe average cost of lead generated in any other channel can be taken as a benchmark, with adjustments for quality as above.

Some of the intangible benefits could be:

Intangible:

- Share of voice i.e. the likes, user engagement, people talking about, retweets etc.

- Conversations i.e. the content (FB wall posts, tweets, blog posts), comments, interactions, pins etc.

- Advocates i.e. Fans, followers, pinners etc.

- Customer Care i.e. handling customer complaints, answering product queries, solving customer issues etc.

The cost for social media includes three parts:

- Content generation

- Technology

- Ads and promotion of the social media channel

As you cater for more and more metrics as tangibles, you will realize that the list of intangibles comes smaller. For example, the number of followers on twitter has a value. Some of that value is captured when we measure re-tweets.

By separating out and attaching value to the tangibles to the extent possible, the ROI formula now looks like -

[Value (likes, comments, shares, people talking about)] – Cost *100 + Intangibles.

Cost

At this point, you could decide at the level of ROI you are comfortable with for the tangibles. For example, even at a tangible ROI of -20%, you might allow this activity to continue as you believe that the intangibles actually take the ROI into the positive domain.

Did you find this post helpful? Please do let me know.

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