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A lot of people will tell you that there is no way to track the ROI of social media, I'm here to tell you that they're wrong. Wrong, wrong, wrong! But why are they wrong? I have a few ideas on that, the biggest of which is that they don't know what they're doing. Another reason could be that they think it's too hard and instead of admitted that, say it's impossible. Other reasons, I'll keep to myself, but I think you get the point!
If you take a look at the traditional formula for ROI you will see that it's rather simple:
ROI = [(return – investment) / investment ] *100
So, for instance, let's say that your investment was the $1,000 you spent on a radio buy, but it netted you a return of $3,000. All you would have to do is plug into the formula, like so:
ROI=[($3,000 -$1,000)/ $1,000]*100
Using the same formula we can covert it for use with social media, it would look something like:
SM ROI=[(sm return - sm investment)/ sm investment]*100
First, let's take a look at your social media investment. The investment can include everything from the cost of giveaways and social management tools to employee compensation and any IT related expenses. Yes, your social media investment should be pretty straight forward, it's in the social media return that some work needs to be done.
Before you can ever hope to calculate an ROI you must first decide what your social media return will be. Your return will fall into one of three categories, as the book, The Now Revolution, points out:
Keep in mind that you can, and should, track metrics for all three, it will give you a much better idea of what your actual return might be. So, pick a different return goal for each ROI category listed above.
Once you have the goal (your return) decided upon, now it's time to assign a metric to it. How will you track your return? What do you have, or are going to put in place to alert you when your goal is reached? For instance, if your goal is to drive more traffic to your website then it's just a matter of looking at your website analytics for social network referrers.
Using the example of website traffic, now it's time to decide what each of those are worth to you. That is, how much is each visit worth? To figure that out, take a look at the total number of sales income you had the previous 6 months from your social traffic (you can try fewer months but 6 will give you a more accurate number) and divide it by the total number of unique social media traffic. That number will help you to establish how much each visit to your website is. I would urge you though, that if you are using website visits as a goal, then you should reevaluate the worth of social visits about every 3 months or so because as you start to use social media the right way, you will notice that leads from your social networks will close higher and higher, thus increasing the worth of a social visit.
$175,000 (Total Sales) / 1,500 (Traffic) = $117 Each unique visit
Now that you have a worth associated with your return, it's just a matter of plugging it back into the social media ROI formula to figure out what your rate of return is.
Social Media ROI Example
First, let's chose a return goal from each category:
Now that we have goals (return) for each category, it's time to plug the variables into the social media ROI formula. Before we do that though, it's important to figure out how we are going to figure out how our total investment is going to be split up, among the three ROI categories. Once you do that, let's take out the calculator and figure this thing out!
The Numbers Below Are Monthly Numbers
Now you can put them all together, if you'd like:
Total Social Media ROI = [($45,000 - $11,480)/$11,480]*100
Total Social Media ROI = 292%
So there you have it, tracking social media ROI! There are others ways that this can be accomplished and other things to consider when tracking social media, so this is just one tool you should be using when deciding if what you're doing with social is giving you the results you have been looking for. Please keep in mind that the ROI ratio I've shown you here is a top level metric, what that means is that it will give you the bottom line but won't show you were you are going wrong, or where you are going right, but that's for another blog post.