Social media return on investment (ROI) is simply a measurement of efficiency.
In other words Social Media ROI is defined as a measure of the efficiency of a social media marketing campaign. It might sound complicated, but it’s not.
What Does ROI Really Mean?
We all know what ‘ROI’ stands but the real struggle is to understand the actual meaning and the importance of ROI.
In the financial world, ROI is used to measure the financial efficiency of an investment. ROI is based on a financial formula: ROI = (return – investment) / investment %.
The ROI formula should be your BEST friend.
Because the ROI formula uses only two inputs – the return and the investment – the ROI formula is an easy way to measure and compare marketing campaigns. A marketing campaign with a high ROI is considered better and more efficient than a marketing campaign with a lower ROI.
It’s important to understand that ROI measures the efficiency of an investment because then you also understand that ROI cannot be defined using alternative definitions.
Now, all we need is to take our social media return (the amount of value that we got from our social media campaign) and our social media investment (the amount of money that we invested in our social media campaign) and run it through the financial ROI formula.
Social media ROI = (SM return – SM investment) / SM investment %.
Seems simple? It’s not!
The social media investment is clearly defined, but how do you define the social media return and how do you attach a euro value to the return? We need to answer both questions before we can calculate the social media ROI.
Social Media Return Is The Return On Your Social Media Goals
The peculiar feature of the social media return is that you can define it to be essentially anything you want it to be!
Social media return is the value that you derive from your social media campaign. For instance, if the goal of your social media campaign is to drive sales, then your social media return is the number of sales that you can attribute to your social media campaign. You can adapt your social media goals based on your campaigns; it can be Impressions, Reach, CTR (click through rate) or Engagement.
I could give many more examples, but the point is that social media return is the value that you derive from social media based on the goals of your campaign. It’s important to clarify here that the number of followers, fans, Likes and comments are not social media campaign goals.
After we have defined our social media return, we need to quantify the social media return into money. This is difficult because you need to look at each type of social media return and develop a method for euro quantification.
For instance, looking strictly at sales, we can quantify the social media return by using unique identifiers such as coupon codes.
Use Social Media ROI To Compare Apples To Apples
After estimating your return and your investment, you use the ROI formula to calculate your social media ROI.
Remember, ROI is a measurement of efficiency, so having calculated the ROI of your social media campaign, you use the ROI number to compare to other social media campaigns.
ROI is possibly the most powerful tool in your marketing toolbox. Use it wisely and frequently!