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What’s the ROI of social media?

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My first look at ROI for social media focuses on revenue conversion, not surprisingly having recently worked in the online price comparison marketplace within eBay Inc this is an obvious starting point for me:

To explain that tweet (inspired by the holy grail of social media which is figuring out the return on investment (ROI) – it started with a good simple equation suggestion in the Hubspot webinar – slide 45:

View more presentations from HubSpot Internet Marketing
I then found a LTV calculator online. There it is, complete with LTV calculation examples. Use the equation with the LTV calculator and you can derive %ROI.
Ooh, one last thing you need to agree for cost of acquisition itself to determine whether the cost is determined by first action acquisition (eg came across you via  blog post, which is where you determine COA) or last action (see slide 48) acquisition (they went away, but came back via PPC Ad before buying). Up to you. Of course, there is no single ROI for social media. Above is just one way to do it around customer acquisition and retention, if that is a key overall business goal.
The gaming apporach to ROI
In a sector which uses metrics to guide day to day development this is another approach:
  • Exposed Persons (EP) = The number of persons exposed to the social media campaign.
  • Acquisition Rate (AR) = The percentage of EP that become new customers.
  • ARPU_monthly (ARPUm) = The average revenue per user/customer per month.
  • Churn_monthly (Cm) = The percentage chance of losing a customer at the end of each month.
  • We can then calculate revenue from the social media campaign as = (EP*AR*ARPUm) / Cm
Facebook engagement
For Facebook a neat example of a measure of ROI for your Facebook Page would be % feedback. Facebook handily tells you how this is calculated – and what is not included – though of course you can cover off links by only using bit.ly which comes with built-in metrics of its own:

FANS      

Average ER

0 –10k 0,96 %
10k – 20k 0,29 %
20k – 50k 0,21 %
50k – 100k 0,19 %
100k – 200k 0,16 %
200k – 500k 0,13 %
500k – 1 000 k 0,11 %
1 000 – ~ 0,09

It only measures comments and likes, and no other actions (such as video plays and link clicks). The feedback percentage is computed as (comments + likes)/Impressions. Facebook analytics specialists Socialbakers have even given an estimate from their clients depending on the Facebook Page size which is useful too (see table above).

When you are ready you can also try checking out FB Insight stats on fans vs active users to find out who to better target to improve engagement. Ultimately, to reiterate, it’s a question of taking is step by step, aligning with business objectives.