Social media marketing was all the rage a few years ago. It’s still the most popular promotional channel for small businesses. According to eMarketer’s Micro Business Marketing Mix Report, nearly 40% of brands rely on social media to boost their brand image and increase revenue. Despite its popularity, some brands are questioning its effectiveness.
AdAge’s Graham Gullans states that the problem is that many brands don’t gauge the effectiveness of their social media marketing campaigns. They should start monitoring the ROI of their social media strategy to determine whether it is paying the dividends they are hoping for.
“Even though social media spending is projected to account for 16% of the digital ad market by 2017, how many of us really understand what we’re getting out of it?”
Here are some things to keep in mind.
Focus on the Right Metrics
Marketers use dozens of metrics to assess the health of their social media campaigns, including:
- Social shares
- Time on site
- Klout score
All of these metrics play a role in your social media marketing strategy. However, Instamacro states that they shouldn’t be your central focus.
Your real focus should on generating profitable leads.
You can boost social shares and traffic to your website by creating a lot of clickbait content that appeals to a large demographic. All your effort will be wasted though if your content doesn’t build brand loyalty with your target customer base. If you alienate your target users with clickbait social media tactics, then you are sabotaging your brand, regardless of how much traffic or social shares you generate.
Consider Impact On Other Marketing Strategies
Your social media strategy is intertwined with SEO and other marketing strategies. Social media can be a great approach to blogger outreach (which can lead to referrals) and building your SEO. Make sure you understand the relationship between social media and these other tactics.
Identify Your Lead Goal
We’ve established that your social media strategy should focus on generating leads. Now you need to decide how to measure your leads. Leads can be counted by people:
- Downloading white papers
- Requesting more information
- Submitting price quotes
- Purchasing a product
- Subscribing to a newsletter
You should only have one lead goal for any given campaign.
Determine the Value of Your Leads
How valuable are your leads? You can’t assign an arbitrary value to them. You need to figure how much revenue an average lead will generate.
Fortunately, this approach is relatively straightforward. Here are some quick steps:
- Determine the average value of a converted lead. Let’s say that you are selling a $50 WordPress package and 50% of your customers upgrade to a premium service and pay another $50. The average value of a converted lead is $75.
- Identify the cost of servicing a customer. In this example, let’s assume that the average cost of servicing a customer is $10. Since you earn an average of $75 in revenue from every converted customer, your net profit on each customer is $65.
- Determine your average lead conversion rate. This is the number of converted leads (i.e. paying customers) for every lead you generate. Let’s say that for every 10 users that email you for more information on your services, one of them becomes a paying customer. Your lead conversion rate is 10%.
- Multiple the net profit of each lead by the lead conversion rate to determine your CPA. Your CPA here is $6.50.
You will be making a net return from your social media strategy if you spend less than $6.50 for every lead you generate. Of course, if you are in a very labor intensive industry or have high infrastructural costs, you will need to earn a fairly high margin to make it worth your time.
Take the Ratio of Lead Value to Cost
According to Aamir, the editor of Clear World Finance, the biggest reason businesses lose money with social media is that they don’t monitor cash flow from their campaigns.
“I may not be a social media maverick, but I know cash flow,” Aamir states. “If you spend more on any marketing campaign than you generate in revenue, then you are steering a sinking ship. Always monitor cash flow or you will perish. It’s as simple as that.”
Multiply your CPA by the number of leads you generate. This is the estimated revenue of your social media campaigns. If you acquired 500 leads this month, then your expected revenue is $3,250.
You should be carefully measuring the cost of all of your social media campaigns. These costs include:
- Cost of paid ads
- Cost of web design
- Cost of paying writers and designers to create content
- Cost of any tracking software and other third-party services
Now divide your expected revenue by the cost of your social media campaigns. If you spent $1,500 on traffic this month, then your ROI is 116%.