Updated on 11-23-13: This post was originally written over a year ago (August 2012) but the argument rages on. How do you measure social media ROI? There is no set of rules that works for everyone. I maintain that you should set up metrics BEFORE you get started with your social campaigns. If ‘the group’ can’t decide on what to measure, I encourage one person to stand up and be bold, and create metrics.

Do you want more people to download your whitepaper? Do you want more people to buy your chocolate candy? Are you looking for more viewers for your videos? Decide on the metrics that mean something to you or your company. Be a hero, be a decision-maker and create the metrics. Once you create these measure them with Google Analytics, Sprout Social, DashThis, HootSuite; whichever tools you would like.

The last bit of advice I will give is to always evolve your reporting. Always. Good reporting always provides better insights over time; it doesn’t remain the same. Please read the post below; its advice is as good as when it was first posted on Aug. 22, 2012. Thanks. Get in touch with me @clearlystatedco if you want to talk about social media ROI.

Consumers today expect that a company will have a social media presence. If one doesn’t exist or it is underdeveloped, then that fact will form part of the consumer’s first impression. Social media has passed the new adopter phase, through the ‘fad phase’ and into the mainstream. Yet some companies are still hesitant to fully embrace social media because they don’t understand how or if it can contribute to their bottom line. Now more than ever your company needs to take control of its social media presence. Proving social media ROI is not a mystery reserved for the privileged few. You can build it into your monthly reporting with these 4 Steps to Social Media Marketing ROI.

1)  Build Your ROI Case

You’re ready to make the case to your C-level executive or board about extending your company’s social media efforts. Congratulations because you are brave enough to be the one to take on this task. However satisfying ROI questions is only half the battle and only half the opportunity. Your challenge will be to show your boss how social media translates into more net revenue, sales, conversions, etc. in the short term and more importantly, over time.

Before you can figure out potential gains, you need to determine where you stand today. Establish your benchmark. What is your customer base? What do your sales figures look like? Take note of your revenue. Measure historical growth trends against past marketing campaigns.

Next you’ll need to figure out what the cost of your investment will be. Since many social media sites are free to join, your investment is primarily the time taken to build and maintain your accounts or the amount of money spent hiring a professional to build and manage them. If you choose to manage your social media accounts in-house, keep tabs on how much time you spend working on them and multiply it by your hourly rate. If you plan to hire someone to develop a social media strategy and execute it for you, calculate the monthly and yearly cost to determine your total investment cost.  Even if you do outsource your social media marketing, there will be in-house oversight and management costs; be sure to factor those in to your cost of investment.

Next you’ll need to create measurable activities that you can track so you can attribute social media’s contribution to the equation. “But wait a minute!” cries your manager, “We’ve got dozens of marketing initiatives, how can you attribute growth to Facebook?” Fair enough! There are many social media measurement tools available that will track different variables, such as website traffic, referrals from your social media pages, online sales, and how often your content is being viewed or shared. You can figure ROI on social media activities; it can be calculated in the same way as for any other marketing activity: Remember to figure it using your gross profit, not your gross revenue. Here’s an example: Let’s say you run a sale solely through your Facebook page. You sell 50 units and each unit returns a profit of $10 per unit, for a gross profit of $500.00. It took you a sum total of 3 hours to set up the sale and generate buzz about it. Multiply the number of hours by your hourly rate (for this example we’ll select $100 per hour as your hourly rate). At an hourly rate of $100/hour, your marketing investment cost is $300.00.

Plug your numbers into this marketing ROI formula:

Gross Profit – Marketing Investment/Marketing Investment

500 – 300/300 = Your return on investment is 66%.

(Read this ROI article on Marketing M.O. and try their calculator to figure your own marketing ROI.)

Of course, there are other small associated costs such as your Internet usage and electricity, but you can break these costs out as well to arrive at a more precise ROI. The point is that a definite marketing activity (the sale set up on your Facebook page) can be tied to a social media initiative and then measured for its ROI; just like with any other marketing campaign.

2)  Set Metrics and Report on them Every Month

Social media marketing activities can be measured. While a discussion about measurement tools could fill a separate post, the main point is to get started with some tools (one of which should be Google Analytics; see Social Media Examiner’s detailed breakdown of how to track social media referrals, conversion paths and more with Google Analytics). Set up a spreadsheet reporting template so you’ll begin your campaigns with some benchmarks, then report on progress each month. Expect to evolve and expand your reporting as time goes on, but be sure to circle back and report on several of the same key metrics per month, so you can track progress accurately from the original baseline readings. Buying the most costly social media tracking software does not ensure that your company will get the most out of its social media campaigns; that would be like buying the best hammer and expecting to be a great carpenter. It’s the human ingenuity behind the tool that will deliver the value.  

3)  The Intangibles Matter – Measure them Too

Consider this quote by Douglas W. Hubbard:

“Anything can be measured. If a thing can be observed in any way at all, it lends itself to some type of measurement method. No matter how “fuzzy” the measurement is, it’s still a measurement if it tells you more than you knew before. And those very things most likely to be seen as immeasurable are, virtually always, solved by relatively simple measurement methods.”- Hubbard, Douglas W. (2010-04-07). How to Measure Anything: Finding the Value of Intangibles in Business (Kindle Locations 262-264). Wiley. Kindle Edition. (Accessed from howtomeasureanything.com August 20, 2012)

Social media offers numerous measurement opportunities. You can ask questions on your social media pages, take quick surveys regarding your products or services, or answer questions posed by your customers. The ability to interact and engage with your customers directly is priceless.

4)  Encourage and Track Micro-Conversions

Micro-conversion data provides opportunities to demonstrate social media’s long term value to your manager. Avinash Kaushik brilliantly established this point in 2008 and illustrates the value that encouraging and tracking multiple micro-conversions per customer can provide. Who knows really if that one time purchaser on your site may only have bought from you because your price was lower that week than the other company he usually does business with? Use social media to offer consumers value over a series of micro-conversions such as white paper downloads, product demo video views, etc. Your payback over time is customer loyalty and more potential sales. Ask yourself and your manager: What is the value of a loyal customer versus an occasional customer? Try to calculate how much your average customer spends on your services and measure how many customers you’re generating through social media outlets. These figures won’t be perfect, but they’ll give you a rough idea of the customer acquisition and nurturing benefits you can derive from social media.

Earn $1.00 Today, and Look Forward to Earning $2.00 Tomorrow

Finally, bear in mind that your social media campaigns will produce benefits that you can assign a dollar figure to today, and that can pay greater dividends tomorrow. The 4 Steps to Social Media ROI can be used to not only convince your boss or your board about the effectiveness of social media as a revenue generator, they can help you track your efforts so you can make data driven decisions. Simple ROI formulas are just the beginning. Track sales but also don’t forget to track micro-conversions which represent the loyalty building that’s taking place along the way (ebook downloads, newsletter signups, free trials). Social media marketing is a trackable activity where you can define metrics and measure outcomes. Demonstrate these facts to your supervisor and become your company’s Social Media ROI Master.