How to calculate return on investment for social media? A quick guide
Every social media developer or creator knows that social media ROI is probably the most important thing for their business. And if you want to start your own business project on in social media, you should know how to calculate ROI for social media.
What does it mean?
When people hear that ROI stands for return on investment, they still can`t understand what it means for their business. So, we will start our article with a deeper definition that will help you to understand more about the ROI.
Return on investment is defined as a measure of the efficiency of a social media marketing campaign. In easy words, this number indicates how good or bad your marketing campaign was.
For example, if you increase your return while keeping investment on the same level, it`s good. Bur if decrease your return with the same investment, it`s bad. Remember: higher ROI is always better than lower ROI.
You must understand that social media ROI measures the efficiency of an investment because then you also understand that ROI cannot be defined with alternative definitions. You can`t use “return on inactivity” to measure the efficiency of your campaign.
Social media ROI uses both return and investment
To calculate our social media return on investment, we need to take social media return (the amount of value that we got from our social media campaign) and social media investment (the amount of money that we invested in social media campaign) and run it through the formula:
SM ROI = (SM return – SM investment) / SM investment%.
For the first time, this formula may look very simply, because we already know the amount of value that we invest in social media campaign. However, how can we define the social media return and how do you attach dollar value to the return? To calculate our social media ROI, we need to find answers to both questions.
Social media return is the return on your social media goals
SM return is the value that you derive from your social media campaign. For example, if your main goal in social media is to sell goods, your social media return is the number of sales that you can attribute to your social media campaign. We can give you much more examples, but the main idea is that social media return is based on the goals that you set them at the beginning of your social media campaign.
Quantify your social media return
When we successfully defined our social media return, our next target is to quantify this return into real value – dollars and cents. It`s difficult because you need to look at each type of social media return and develop a method for your quantification.
For example, if we will come back to our example with selling goods, we can quantify our return by looking at the “first touch” sales or we can use other methods like the number of transactions that were made to our bank account.
Calculate your own social media ROI using the formula that we gave you at the beginning of the article. You know what each of these metrics means, so you are able to find our how good us your return on investment.