3 steps to calculating the ROI

Why do we calculate ROI?

Calculating return is one of the more difficult elements of social media ROI because it can mean so many different things to so many different marketers. For example, it was historically very common to tie social media return to direct sales.

While social commerce is possible in some platforms, for many social media campaigns the objectives are around engagement, reach and reputation which is measured by other criteria than sales.

How to calculate ROI

1. Choose the goal

This can be anything from new followers to spending time on a certain webpage.

2. Track the goal

Choose the goal and begin to track it using all the tools at your disposal.

3. Assign a monetary value

Is it Lifetime Value (LTV), average sales, etc?

How do we calculate social media ROI? While it is true that participation on Twitter, Facebook, and other platforms is free, time is not, social media tools may not be, and ad spend has a direct cost.

Social media ROI is your financial return from all the resources, time and energy spent on social.

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To start calculating your return, you need to establish a goal – what you set out to accomplish and how. Once this has been confirmed, you need to be able to track your goal.

The step-by-step process below provides an example to better visualise the calculation. Google Analytics is used to track the website actions and a cost of £25 a lead has been established.

Step 1) Set a goal with clear metrics in place to measure success. For example:

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Step 2) Create a simple spreadsheet to capture the expected actions, conversion rates, revenues, and costs in order to calculate the ROI.

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Each lead is worth £100 to the business. The return, therefore, is £5,000.

The business uses a social media monitoring tool and a social media manager, which in total cost £2,000. In addition, £500 is spent on social media advertising. The investment is, therefore, £2,500.

So, ROI for the month = (return [£5,000] – investment [£2,500]) /investment [£2,500] = 100%

When calculating ROI you must have a full understanding of your investment.

The elements to calculating ROI

Three simple elements you need to add up to calculate your investment are listed below:

• Your time – multiply your labour cost per hour by the number of hours committed over a given period (depending on whether you’re measuring social media ROI for the week, the month, per campaign, etc.).
• Your social media tools – add up the costs of all the tools and services you use for social media. Find the weekly or monthly costs (divide annual fees by 52 for the weekly cost, and by 12 for the monthly cost).
• Your advertising spends – calculate the amount you spend on social media advertising boosting Facebook posts, promoting tweets, etc.