Although social media provides valuable and free tools to marketers, effective marketing is still driven by the money and effort marketers put into it. Determining return on investment (ROI, or ROMI — return on marketing investment) is vital for understanding where money is going and if it’s resulting in new leads. Return on investment is defined as “a measure of the profit earned from each investment.”1 The term originated in the finance industry, and has now found a place in the marketing lexicon. In marketing, ROI specifically refers to how much a company makes, or how many leads it receives, after investing in marketing efforts like advertisements or campaigns such as a newsletter signup, sweepstakes or giveaway, or social media contest. However, according to a 2015 study by SimplyMeasured2, 60 percent of marketers struggle with measuring ROI.
60 percent of marketers struggle with measuring ROI
While ROI is undeniably — and primarily — about numbers, quantity should not be the sole factor you measure. Understanding your ROI also helps evaluate the quality of the return. For instance, if you’re spending more than you’re getting back, you can use this data to improve your strategy going forward. Digital strategist Matthew Strelitz argues that focusing solely on ROI, especially in terms of social media Likes, fans, followers, etc., means that marketers are asking the wrong questions and getting stuck on one tiny part of a bigger picture3. Marketers succeed when the focus is less about Likes and follows, as these aren’t the most accurate indicators of true engagement. Instead, marketers should look at the way people are talking about their brand and sharing it with others.
Marketers should look at the way people are talking about their brand and sharing it with others.
Marketing researchers Donna L. Hoffman and Marek Fodor, in an MIT Sloan Management Review Study4, agree with Strelitz. “Effective social media measurement should start by turning the traditional ROI approach on its head. That is, instead of emphasizing their own marketing investments and calculating the returns in terms of customer response, managers should begin by considering consumer motivations to use social media and then measure the social media investments [time and money] customers make as they engage with their marketers’ brands.” What this means is that marketers need to understand what draws people to social platforms in the first place — the desire to connect with others who share similar interests or lifestyles. Knowing this, brands on social platforms can engage with users in a more direct, meaningful way.
A user’s conversion trajectory isn’t always as straightforward as going from point A to point B
In 2014, popular social media scheduling and management tool Buffer announced that they stopped calculating direct social media ROI, encouraging marketers to take a different approach to how ROI can be evaluated5. What this means is that the Buffer team “stopped focusing on conversions as a key metric” for their blog. This choice was made because Buffer understands that a user’s conversion trajectory isn’t always as straightforward as going from point A to point B. Users discover and convert to brands in a multitude of ways, and trying to understand that process is a better use of time than assigning one equation to all users.
Investor and social media expert Gary Vaynerchuk touches on this same concept in his memorable and brutally honest Inc. 500 talk, “What’s the ROI of your mom?”6 In his talk, he argues that measuring the ROI of social media isn’t black and white. “It doesn’t matter how many fans or Twitter followers you have — it’s how many of them are going to buy something.”
Vaynerchuk uses the metaphor of his mother to demonstrate that real impact, real engagement, isn’t simply a numbers game. Vaynerchuk says, “I can’t show you in data the ROI of my mother.” He “calculates” her impact on him through tangible experiences and specific memories.
"It doesn’t matter how many fans or Twitter followers you have — it’s how many of them are going to buy something.”
~ Gary Vaynerchuk
Shifting the focus away from numbers is intended to get marketers to think more creatively about the relationships they’re forming between brand and user. After all, no one wants to feel like they’re just a number, a name on a list or a dollar sign. However, it’s important to remember that marketers don’t have to write off metrics altogether. But rather than trying to quantify every interaction, focus instead on key metrics. For Buffer, as just one example, the key metric is email signups; this is how they measure impact, and using email signups as a goal lets them track specific conversions and focus their efforts into creating top-notch content.
According to Hoffman and Fodor, there are three metrics that impact how marketers evaluate ROI
Some additional metrics to prioritize:
These metrics allow marketers to use a specific variable to measure their efforts. It’s a good practice so marketers don’t set budgets without insight. There’s more to measuring ROI than simply placing a numerical value on a Like or lead. Social media research requires a mixed-methods approach. Data should drive all decisions, but it’s easy to forget that data is not always strictly numerical. Measuring ROI is about asking the right questions and using the right formula to best track and analyze marketing efforts.
ShortStack is a marketing campaign-building tool used by small and enterprise-level businesses, and by large agencies. Founded in 2011, ShortStack is a software as a service (SaaS) platform, and also offers custom design services. ShortStack was recently named an Inc. 500 company. ShortStack was one of the first companies to see potential in Facebook as a place to host tabs (which Facebook also refers to as “apps”), contests and landing pages. Since 2011, ShortStack has expanded its features and services to be a one-stop-shop for marketers and social media managers who need a multipurpose social media hub. With ShortStack’s Campaign Builder, contests and landing pages — which are all known as “Campaigns” — can be designed and then promoted from any social network, and can also be embedded on existing websites.
For the purposes of this paper, we investigated how our users were using marketing automation in their marketing efforts, and also studied our internal process to identify best marketing automation practices.
Measuring your ROI is a multi-step process. Here’s how the ShortStack team crunches our data, and which questions we ask to determine our ROI.
Before you can determine your conversion rate, you first need to track your conversions. According to AdStage, “A conversion takes place when a visitor to your site takes an action you care about and ‘converts’ to become a customer. This could be through filling out a form, completing a purchase, or by simply showing a high level of engagement with your site.”7
It helps to start by determining your conversion goals so you know what to look at specifically. According to Denmark-based agency ThinkDigital, conversion goals can include things like:
The most effective way to set up your conversion tracking is to implement Google Analytics. You’ll first need to create a “Goal” within Google Analytics, and use the URL builder to create trackable URLs.
You can also use a tracking pixel on websites like Facebook or Twitter. Here’s how to set this up on your ShortStack Campaign. According to Facebook, “conversion tracking can help your business measure the return on investment of Facebook Ads by reporting on the actions people take after your ads are viewed.”
There are several formulas to use to calculate your ROI depending on what you are trying to measure. If you want to know your conversion rate to determine how existing efforts, like Facebook ads, are working, you can use the following formula:
Conversions ÷ Clicks = Conversion Rate (%)
For example, if you have 70 conversions from 2,000 clicks, the conversion rate is 3.5%. Once you have tracked your conversions, Google AdWords8 recommends doing this by “dividing the number of conversions by the number of total ad clicks tracked to a conversion during the same time period.”
70 ÷ 2000 = 3.5%
If you want to determine the value of your leads to determine how much each of your leads is worth, you can use the conversion rate to determine lead value. This formula from Topfloor Tech is one of the simplest:
Average Sale x Conversion Rate = Lead Value
Determining the conversion rate and lead value can help you measure how much you’re spending to gain new leads and determine your ROI. For a straightforward number, Buffer9 recommends this formula for measuring social media ROI:
ROI = (return - investment) / investment
Be sure to use specific metrics for this. For instance, your “return” value can be the monthly conversion rate from your email signup list; the “investment” is what you spend monthly on your email marketing tool.
In the context of ROI, it’s not uncommon for marketers to ask, “What is a Lead / Like / Follow worth?” The honest answer: it depends. It depends on the platform where you’re gathering leads, and it depends on your service.
Why even ask? At the very least, this provides some industry-wide insight on what currently drives marketing costs. Below, we’ve compiled industry standards for these values to help support marketing decisions. Keep in mind that there’s so much more to the value of Likes, follows and shares than just the approximate number found in select studies.
These values are constantly changing, and for the most accurate numbers, be sure to calculate your own. These can also vary by industry.
In 2013, research companies Syncapse and Hotspex aggregated the value of a fan for more than 2,000 companies. Subsequent studies conducted more recently have found similar figures. Their average value of a fan on Facebook came out to $174 but varied widely within the study. For example, the fan value for fashion company Zara was $405.64 compared to Coke’s $70.16. The values vary so much because of industry and the average cost of sales within that industry.
However, another study conducted prior to that by agency SocialCode found that a Facebook fan was worth approximately $10. The huge discrepancies in these numbers are indicative of a few things: difference in research methodology, frequent changes in Facebook as a marketing platform, and the selection of companies evaluated for the study. This demonstrates that the values of Likes and followers is not one-size-fits-all, and why determining a value is such a challenge for market researchers.
An Imbue Marketing study10 found values similar to SocialCode; according to their study, a Facebook Like is worth $8. More importantly, a Facebook Share is worth around $14. It makes sense that this value would be higher than a Like, since Sharing is active (versus the arguably passive action of a Like) and opens up your brand to a new audience.
Marketers should take these values with a grain of salt. The value of each fan varies drastically for each brand; two companies within the same industry could have a big difference in the value of their fans. This is because “value” is essentially subjective and should be determined by you, based off your target audience and what it takes for them to come on board. Because if you base your budget based off of Coke’s fan value in that 2013 study, for instance, your efforts aren’t based in the reality of your own company.
The values of Likes and followers is not one-size-fits-all, and why determining a value is such a challenge for market researchers.
It’s also important to know that shares are a better indicator of engagement than Likes. Likes/follows can fluctuate, especially if you’re running a promotion that incentivizes following and Liking your profiles, as users will do that for the promotion but may choose to unlike/unfollow afterward. Sharing, however, demonstrates that an individual saw value in sharing your content, and shared it with people in their network, organically opening your brand up to more exposure and potential new leads. Sharing is even harder to place a numerical value on, which is why any studies that do quantify it should be interpreted as values specific to whichever companies are profiled within it. Essentially, a share is a word-of-mouth endorsement straight from one of your customers, and research has found that word-of-mouth marketing on social media is one of the most effective ways to draw new people to a brand11.
In the same study, Imbue Marketing determined that a Tweet about your brand is worth $5, and a Twitter Follow is worth $2.
Determining this value is a bit trickier, but machine learning company SimpleRelevance (now Rise Interactive) developed a formula12 to measure this. SimpleRelevance founder Erik Severinghaus says to “model your information assets the same way bankers model the value of a financial asset: the discount cash flow you can expect to generate.”
He created a key to simplify each element of an email list. It’s as follows:
Open Rate - O
Click Rate - C
Purchase Rate - P
Total Revenue Generated - TR
Profit Margin from Revenue - PM
Unsubscribe Rate - U
Plug these values into this formula to determine what Severinghaus calls the “profit contribution” from an email:
O x C x P x TR x PM = Pc (profit contribution per email)
He also provides a formula for determining how many purchases a user makes before unsubscribing from a company’s email list. Doing this then allows you to calculate your “profit expectation per email.”
P/U = Pe (purchases expected)
Pe x Pc = PE (profit per email)
Karen Talavera of Synchronicity Marketing13 also provides a formula to determine your annual revenue per subscriber (RPS):
Annual revenue attributed to email marketing = X
Number of valid, deliverable subscribers = Y
Annual email RPS = X/Y
Knowing the numerical value of a conversion is part of understanding the overall value a user brings to your company. The other part of this process is less formulaic. It’s important for marketers to observe how people are finding their brand and the quality of engagement.
Think of it like this: Where quantitative value helps measure the monetary investment of marketing, qualitative value helps determine the time investment.
Here are some questions to ask to help gauge the qualitative value of your users:
These are just a few of many questions to ask throughout the whole marketing process, and more will likely come up. Observational data can help put your numerical data into perspective.
Return on investment goes beyond justifying the amount you spend on advertising and the profit you make because of it. It’s also a way to budget for marketing tools to help make marketing efforts more efficient and successful. Knowing what it costs to obtain leads can also help drive the logic behind your product pricing, which in turn affects how much you allocate to your marketing budget. Think of it in the standard sales analogy: for just one cup of coffee a day/week/month, you can get [insert service here]!
For just one cup of coffee a day/week/month, you can get [insert service here]!
But investing in a marketing service can have real value for your company, as services like Mailchimp, Buffer and ShortStack help you manage multiple marketing tasks at once. Services like this, which are subscription based, allow technical tasks—like managing email lists, scheduling posts, and creating landing pages that can have automated, interactive content—to be handled in one central tool. It also saves money that would normally be allocated to building a custom system to handle those tasks. But marketers, especially small business owners, may not immediately understand the value of using services like this. Each of these services offer subscription plans starting below $30, which means that it’s not a huge chunk of money for small business owners. An average annual plan for a small business owner comes out to $200 for these services and their competitors. To put it into context, we looked at some average sales costs based on the primary ShortStack users’ industries, to help marketers see how just one sale can essentially cover the cost of an annual subscription to a marketing service14.
For instance, here are some common numbers:
One sale alone covers most, if not all and then some, of the cost of an annual subscription. Another way to look at this is to take inventory of other business costs, such as the supplies needed in the office. The average small business spends $19 a month on office supplies alone21, including supplies like printer paper or pens. Spending $228 a year on supplies that can be digitized is an unnecessary expense. For instance, a marketer designing a social media contest may want to print it out and give to a manager for review, but could save time and money by handling it through a service like ShortStack. Small business owners know that even small costs add up to big numbers over time.
Business costs include expenses in the digital realm, too, such as paying for Facebook advertising. While this varies for each business depending on the marketer’s goals, many small business owners start by paying around $5 per day. This comes out to $1,825 per year to pay just for one small piece of the bigger marketing effort.
For most business owners, this is why it’s helpful to use existing values to put the expense of a marketing tool into perspective. For instance, if you know that the value of a share is around $10 for your brand, and a month-long contest received 100 entrants, then spending $200 for an annual subscription means that the ROI of that expense was well worth it since the contest only lasted a month. This expense for a tool like ShortStack also included the ability to create and review the contest, sort and select winners from the participants, and have a database of the participants’ contact information. One $200 expense ends up having a much higher value.
Ultimately, regardless of industry, gaining one new lead covers the expense of a marketing tool that could have a major impact on the way marketers connect with users and manage their marketing efforts.
When it comes to measuring your ROI, the bottom line is that marketers shouldn’t get too caught up in the numbers and overlook the other elements of value that comes with seeking and gaining leads. But making data-driven decisions is smart, so using a mix of tried-and-true formulas along with first-hand observations can help marketers understand where their money is going and what they’re getting in return. Renowned statistician and management consultant William Edwards Deming’s quote applies here: “You can’t manage what you can’t measure.” And in fact, Deming said this to encourage managers to think beyond the “visible numbers,” which makes this especially apt here.
So even though “spending money to make money” may ring true in the quest to develop an active, engaged audience for a brand, a marketing budget doesn’t have to be huge to make an impact. There’s a shift in how marketers are evaluating ROI, as evident by notable social media marketers like Gary Vaynerchuk and Buffer. It’s less about assigning a number to each lead and more about building relationships, and understanding which outreach efforts work the best. Determining ROI means that marketers know how money and time are being spent and what to look for in return.
1 | “Return on Investment - ROI - formula and Use”
2 | “Report: Marketers still struggle to measure social ROI”
3 | “What’s the value of a Facebook ‘Like’ in 2015?”
4 | “Can you measure the ROI of your social media marketing?” MIT Sloan Management Review. Hoffman & Fodor, 2010.
5 | “Why we stopped focusing on direct social media ROI: A new way of viewing conversions”
6 | “What’s the ROI of your mom?”
7 | “Tracking conversions with Google Analytics”
8 | “Google AdWords: conversions”
9 | “The delightfully short guide to social media ROI”
10 | “Facebook vs. Twitter — what’s a Like, Share, Follow or Tweet actually worth?”
11 | “Why word of mouth marketing is the most important social media.”
12 | “What’s your email list worth? (In actual dollars)”
13 | “Determining subscriber value: What’s an email list member worth?”
14 | Sale averages are based on US amounts in 2015
15 | “Average daily rate of hotels in the United States from 2001 to 2015”
16 | “Air fare data”
17 | "The state of American dining in 2015"
18 | "Kitchen appliance costs"
19 | “Average new car price zips 2.6% to $33,560”
20 | “Cost comparison: internet dating sites”
21 | “The average cost per month for office supplies.”