No doubt ROI will once again be one of the most discussed and debated topics in social this year as more businesses jump into social marketing. Unfortunately, there are no easy answers to the question and there is no one agreed-upon formula to determining social marketing ROI. For two reasons:
- Many factors go into calculating social ROI: engagement, clicks, conversions, etc.
- Social marketing ROI is unique to every business. What’s important to me and what I should be measuring might not be important or relevant to you.
I don’t think it is entirely prudent to look only at financial metrics (sales and revenue) when measuring social marketing ROI. In this post, I share how I approach the task of measuring social marketing ROI.
First, lets establish two facts:
Fact 1: Conversations in your marketplace are taking place on social media. If you are not on social, then you are not participating in those conversations — and therefore not gaining access to the “consumers” who are participating.
Fact 2: There is an “opportunity cost” of not participating on social (more on this later).
The opportunity cost, of course, varies for every business, because the ROI is unique. But what I know for sure is this – I’m a huge believer in social marketing and here’s why:
Five benefits that I — and my business — get from social marketing:
- Some of the very best content that I’ve found has come through social — primarily Twitter. I would have to subscribe to numerous publications and spend hours reading those publications to get the amount of information I get through social in just a few minutes of scanning news feeds each day. And I’ve read information found through social that has helped me build better products and contributed to my own self-improvement.
- I have discovered new products through social that I would not likely have discovered otherwise. Some of these products are contributing to my own company’s operational and marketing success. And a few have saved me thousands of dollars in costs per year.
- I have been introduced to and have met people through social who have become important advisers and partners to my business.
- Social marketing has exposed our brand to a much wider audience. Social media, if nothing else, is a cost-effective way to build and grow a brand.
The above are mostly “soft” numbers with no concrete ROI – at least nothing to satisfy a CFO. But as a business owner who has been using social for seven years, these benefits are enough to satisfy me because I know that down the road all of these translate into hard ROI numbers. The cost to me is my time, and on average I’m on social (for business purposes) about 30-45 minutes per day. Then there’s the fifth benefit I see.
- Social marketing drives traffic to our content. And this has resulted in conversions: newsletter sign-ups, demo requests, content downloads. Conversions are the most logical and straightforward way to measure the ROI of social. But it’s not all about the conversion. I believe that publishing great content and having people read that content is good for our brand — even if they don’t immediately sign up for anything.
But here’s the kicker.
I know for a fact that our sales team has scheduled meetings and closed deals as a direct result of social marketing.
The LTV (lifetime value) of a software customer for us is close to $10,000, so a few sales of our software during the year — as a result of our social marketing — pays for our investment in social marketing.
As I’ve already said, even without these financial benefits I’d still be investing in social marketing. But we still need to satisfy the CFO, so let’s try and provide a framework for calculating the ROI. To do this, let’s look closely at two questions:
- What is the cost of social marketing?
- What should you spend on social marketing?
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According to research by the Content Factory, the average amount companies spend on social marketing is between $200 and $350 per day. An interesting range, but this doesn’t help you decide what YOUR business should spend on social marketing. I’ve seen companies spend less than this and get a good return and I’ve seen companies spend more and get little return. So let’s approach the question from a different angle. According to Gartner research, the average marketing budget is about 10% of gross revenue. My experience validates this.
So for a business doing $1 million in revenue the marketing budget is $100,000. How much of this do you allocate to social? Certainly not $350 per day (the high end of the earlier range). That would eat up about 80% of your budget! The truth is I have no idea what your business should spend — nor does anyone else. It depends on so many variables. I like Gary Vaynerchukwhat’s perspective in his post What’s The ROI Of Your Mother?
“When it comes to social, learn the platforms. Find the perfect combination of creative, copy, and strategy. Understand the insights, iterate and execute against them. Only when you’ve reached that point, my friends, can we start to have a real conversation about social media ROI.”
In the 1990s, there was absolutely zero agreed-upon ROI for having a marketing website for your business. “Why do we need a website?”, business owners asked, “we have great looking brochures and folders we send to prospects?” The company I was with at the time invested tens of thousands of dollars to have a state-of-the-art website in 1995. Most of our direct competitors ignored the Web, and some of them are not around today. I know not investing in a website is not the reason entirely, but I do know our early adoption to the Web gave us a tremendous leg up on our competition and allowed us to become much more technologically savvy which made understanding and adopting the next phase of web technology — digital marketing — that much easier. Eventually, technology transformed our entire business and we never lost our edge.
I am seeing the same thing with social marketing.
So spend something on social marketing. And get some experience.
My suggestion for smaller businesses new to social is to find someone internal or an independent consultant to spend an hour or so a day helping with your social marketing. This would cost you roughly $1,500 per month — 18% of our $100,000 annual marketing budget (a lot more palatable than 80%). You can accomplish a lot in an hour if you have the right tools, a social marketing workflow to follow and team support. In the HR and recruiting space, I of course recommend our social marketing workflow software, Get it Done! Social Marketing for HR, recruiting and benefits brands.
Start small and experiment.
Part 2 to this post details what we at HRmarketer spend on social marketing and our estimated ROI. Read now.
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