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How to Calculate and Find the ROI of Social Media

The return on investment question is one of the most common that businesses have when it comes to social media. It’s a fair question and I believe that social media should have the same level of accountability as any other type of business decision. Actions should be justified by measurable results.

How to calculate ROI

To calculate ROI use the  formula: (X – Y) / Y
Y is the initial investment
X is the return

If I invest $2000 towards social media and receive $6000 in return (6000 – 2000) / 2000, I would have received 2x my initial investment.

You can also look at the calculation from a more traditional perspective and view return as a percentage.

(Return after expenses – Investment) / Investment * 100

For the original scenario you would calculate ROI as:  (4000 – 2000 ) / 2000 * 100 = 100%
The return on investment is 100%

How to find the return

To figure out the return you need to know what type of return you’re getting before you implement a social media strategy. For example, let’s say you want to increase the amount of direct sales that you’re receiving off of a website. The first thing you’ll need to use is a tool such as Google Analytics to measure how much traffic you’re currently receiving. Once you have a hard line to go off of, you can implement a social media strategy and watch and see how your traffic and direct sales numbers changes. Track the click throughs your receiving off of various social networks (using a service such as bit.ly) and find out how much traffic is being generated. PostRank is another tool worth looking into. Next you have to go a step further and determine the quality of that traffic. You may be receiving higher traffic from a different source, but what percentage of that traffic is converting into sales? Creating a separate landing page may be a good idea to help uncover some of this information.

The above scenario can also be applied to hard numbers for a business with a physical location. Track your social media efforts by using coupon redemption methods (create a Facebook only coupon and see how many people redeem it) or simply ask customers to find out a general idea of how much new business is being generated through social media

With these numbers you can put together the picture of your return on investment and start doing more of what works and less of what doesn’t. It’s important to keep in mind that social media isn’t a quick fix solution. Developing a smart social media strategy and implementing it within a business will take time. At minimum it will take about three months before full return can start being realized.

Sparkplug Digital can help your business develop and implement a smart social media strategy that helps the bottom line. Questions? Contact us via email: info@sparkplugdigital.com

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