How Do I Calculate ROI For Social Media Marketing?

Many years ago, if your business didn’t have a website, you quickly found yourself falling behind to your competition. These days, the same concept applies to social media. If your business does not have an active presence on popular social media platforms, it’s time to catch up. You may have already considered setting up accounts on Facebook, Instagram and LinkedIn, for example, but like many others, you’ve struggled answering this question:

How in the world do I calculate my ROI (return on investment) for social media marketing?

As a business owner or a decision-maker within your organization, this is a perfectly logical and necessary question to ask. We typically pitch the idea of social media marketing as a way to grow and cultivate awareness of your brand. These days, utilizing social media to improve brand recognition is a given. To truly measure the effectiveness of your social media efforts though, you’ll need to step up your game and get your hands a bit dirtier.

KPI + CAC

Begin by determining your KPI (key performance indicator). Some folks use popular social metrics such as likes, clicks, shares and overall engagement as their KPI. While these items can be measured and improved over time, they don’t really give you any indication if you’re “getting your money’s worth” related to the time and cost of managing all of your social media marketing initiatives.

For many of our clients, we recommend using CAC (customer acquisition cost) as your KPI for social media marketing. As you have probably deduced on your own, CAC is the average of total marketing dollars spent per each new customer you acquire. We’ve discovered that many small businesses do not have this data. If you fall into this category, we highly recommend calculating your CAC. Not only is it necessary to determine ROI for social media marketing, but it’s a highly effective metric to use across other marketing channels as well.

Tracking, Analytics + Landing Pages

After you’ve determined your KPI (in this example, CAC), the next task is to set up tracking, analytics and website landing pages. Each social media channel has its own tracking tools, and they all work in slightly different ways. The goal though, is to use your website landing pages to track from which social media platforms your visitors originate. You’ll then be able to calculate the total number of social media clicks that turned into website visitors, that then clicked a call-to-action, that then completed a website form (or made a phone call), and eventually turned into a paying customer.

Measurable Results

At this point you now have the two numbers that you’ll compare to each other. After you’ve determined the number of paying customers who originated from social media posts or social media advertising, compare how much money you’ve spent on social media marketing to your CAC. If you find you’re spending a great deal more on social media marketing, compared to your overall CAC, it’s a good indicator that your social media marketing strategy and execution need to be revised in order to be more effective.

Social media marketing, on the surface, may seem deceptively simple. However, if you really want to harness the power of social media marketing and use it to grow your business, it’s crucial to measure results and compare those results to your overall digital marketing costs.

We realize that many small business owners and decision-makers neither have the time nor desire to manage their business’s social media marketing strategies. That’s where we come in. If you’d like to chat with us about how we can jump-start your social media marketing strategy, give us a call at 804-577-8679 or fill out the short form below.