Measuring social media ROI is frustrating because we use different definitions. We broke down the best practices into a simple 3-step framework. ⚡
Social Media ROI is broken, but you can fix it.
When someone asks, “what’s the ROI of our social media”, it’s important to understand why they’re asking.
ROI is a simple formula but a complex problem.
On one hand, it’s a straightforward equation: What was our financial gain from the financial investment we made?
On the other hand, you’re opening a can of worms.
How do we define gain if the impact is indirect?
How do we define gain when the output is a 20% increase in post engagement?
How do we define investment when the costs are shared between initiatives?
And so the thought spiral begins…
To make it a little easier, we’ve developed a three step process that works for every type of brand – yes, even B2B brands.
What to Measure for Social Media ROI?
ROI can be a confusing, often misused term. The whole investment part tends to bring financial gains to mind. Traditionally, this makes sense. But when it comes to organic social media marketing in your organization there are different ways to interpret ROI.
The standard ROI formula looks something like this:
Amount Gained (Profit) – Amount Spent x 100 = ROI % Amount Spent
This formula starts to fall apart unless you’re dealing in money on both ends – which is often just not the case with social media.
Social media ROI isn’t always measured in dollars and cents. And because marketing tactics can vary so much from business to business and platform to platform, it’s hard to determine a single ROI benchmark that works for everything across the board. Instead, you need to operate from an expanded definition of ROI.
Let’s break it down and define the various components, shall we?
What’s the Definition of Social Media Return on Investment?
How do you define “return” and “investment?”
We’ll start by defining the “return” part of ROI. It can mean one of a few things:
How to Define “Return” in ROI
Return is the value you got back from social media. There are 3 ways to define what people mean when they ask for a return.
1) Return = Dollars: The most straightforward interpretation of return is monetary. Return measured in revenue or profit is universally respected in the business world. It’s easily calculated in e-commerce businesses, direct/performance marketing programs.
For example, generating 10% month-over-month growth in new customer revenue.
👍Pro: It makes sense for everyone in the organization. It aligns marketing teams with sales.
👎Con: It requires a keen understanding of revenue attribution. It may favor marketing efforts with short-term effects versus long-term impacts.
2) Return = Marketing Impact: Your return can also be measured through marketing metrics. With this model, you are justifying marketing expenses with marketing measurements instead of the exact business outcomes. Rather than a direct correlation to revenue, you are using approximations, or shifting the conversation entirely.
For example, generating 10% increase in website visits.
👍Pro: Easier to measure.
👎Con: Distances marketers from the actual business growth.
3) Return = Business Impact: Your return can be traced to a strategic business priority outside of marketing and sales. Social media is commonly characterized as a marketing channel but it supports other departments, too. Your most important KPIs may differ from another company. Generally, you can bucket social media-driven business impacts into the following categories:
Brand: Lift in market share or share of voice.
Profitability: Time and hard dollars saved.
Talent attraction: Number of key hires made.
Employee Engagement: Lift in surveyed employee happiness score.
Customer advocacy: Number of customers engaged, referrals generated, or reviews generated.
You can also consider a blend of multiple answers as your return.
👍Pro: Social media is aligned from the top down.
👎Con: It can be equally difficult to translate social media efforts to other business metrics.
Next, let’s take a look at the “investment” bit.
How to Define “Investment” in ROI
Investment is the value you put into your social media.
1) Investment = Dollars: Money spent on social media related expenses like ads, assets, humans, and software. Again, this is pretty straightforward. Your calculation includes hard and soft costs.
2) Investment = Effort & Time: Your time is a precious resource. The amount of effort your team spends working on social media activities could be translated into hourly costs. It isn’t always expressed that way, however.
In marketing agency partnerships, time is commonly translated into dollars: your agency’s social media campaign may have required an investment of 100 billable hours, and 100 x $125 = $12,500.
Your in-house marketing team can calculate its own cost, too. In a simple scenario, a dedicated social media manager would use 100% of their resources on social media initiatives. According to Glass, the average salary for a social media manager is around $55,000, plus benefits and overhead. By breaking down their salary into an effective hourly cost you can account for the investment of each activity.
Once you factor in shared resources, approval time, and meeting costs, it can get complicated fast.
With an understanding of your true investment, you can start to calculate opportunity cost. Investing your personal time editing social media content may have taken 10 hours. But it also represents an opportunity cost of 10 hours not doing something else.
Over the course of a month, what did the investment in updating YouTube titles generate in return versus an investment in another channel? Or another project?
As you can see, this expanded definition of ROI is more comprehensive than just dollars in, dollars out
Define ROI for different scenarios
Your company might define ROI as any combination of the above.
Testing a new channel? 20 monthly hour investment of company time in TikTok vs. the 1,000,000 impressions in earned reach it generated over 3 months
Launching a new effort? $2,500 spent on your paid social recruitment campaign vs. the potential $25k gained from the capacity created by your new fire
Define ROI for your stakeholders
ROI is likely presented as attributed dollars for the CFO, and as a selection of marketing KPIs with the CMO.
Determine what you need to measure, then build a definition that works for your brand.