Business growth requires financial investment, however, it can be daunting to determine how much of your business’ budget to invest in social media, especially when financially planning. As technology continues to transform the way we live, work and play, business owners know digital transformation – whether storing documents in the cloud instead of a filing cabinet or electronic inventory management – is no longer optional.
Yet, the plethora of information about social media for business can be overwhelming or confusing, even more so when trying to determine how much investment your business needs to make to meet your objectives.
Comparing social media versus traditional advertising – which offers clear cut conversions and outcomes that can be directly measured against how much money is spent – often raises the question: ‘Is social media worth it?’. With over half the world now active social media users, there has never been a more opportune time to invest more effort, time and money into your social media channels – if you have the means. Importantly, investment in social media can deliver considerable return, if success is calculated or measured in the right way as part of a structured business plan.
What is ROI?
Return on investment, or ROI, represents an equation that measures the financial results of a monetary investment. A straightforward example is evident in the stock market; in which at any given point in time, there is a definite sum of money received in return for an initial investment. Trying to apply this simple concept to your social media activity may seem more complex, as dollar value isn’t the sole index of a successful investment. The advantage of social media investment exists in its ability to provide an array of metrics; such as impressions, reach, engagement, referrals, conversions, response rate and share of voice, which in context provide a roadmap for success specific to your business’ needs. For example, if a business’ primary objective is to increase market penetration, then share of voice, sentiment, reach, referrals and conversions can combine to provide a powerful indicator of social media ROI.
To simplify what social media ROI means, Hootsuite defines the “ROI of social media” as the sum of all social media actions that create financial value.
Why do we want to measure ROI?
Both in life and in business, time and money are valuable resources, which means if there is no meaningful benefit to spending either, it is not worthwhile to continue doing so. As a business owner, any investment of resources needs to be accounted for and deliver a positive return to justify its spend. Therefore, measuring social media ROI is imperative as it:
- Justifies financial and resource investments in social media
- Measures campaign success and effectiveness
- Provides a benchmark against which to set social media KPIs
- Determines the channels and modes of customer engagement that are delivering the strongest returns, enabling efficient optimisation to maximise cost effectiveness.
How do you measure ROI on your social media activity?
Creating a framework to determine social media ROI does not need to be complex. Here are a few steps to take as a starting point:
#1 – Set objectives: It is imperative to have clear objectives that integrate business goals with social media metrics. Examples of objectives could relate to new customer acquisition, lead generation, brand awareness, customer affinity or perception.
#2 – Set SMART goals: Meaningful objectives must represent the role of social media in achieving organisational goals. It’s important to ensure that any of your objectives are clear, specific, measurable, achievable and time-bound. For example, if your aim is to increase brand awareness, whilst improving operational efficiency, specific objectives could include boosting social share of voice by 10%, reducing the message response time to an hour within the next 12 months or obtaining 30 email sign ups per month.
#3 – Track relevant performance metrics: Measuring likes and comments are great surface-level indicators of audience engagement. However, more sophisticated metrics will demonstrate results that appropriately align to broader business objectives and goals. Examples of relevant metrics include reach (total number of content views), engagement rate (total number of audience interactions / total reach x 100), lead generation (prospective customers) and conversion rate (total number of sales / total number of landing page visits x 100).
#4 – Know your spend: To determine an appropriate social media budget, you need to account for every cent invested towards amplifying a business through social media. Examples of this include engaging photographers to capture content, spending money to boost posts, a monthly fee towards social media scheduling tools, and even investment towards dedicated in-house social media resources or training. Knowing the exact monthly or annual figure is essential in the accurate calculation of ROI.
#5 – Analyse & optimise: Translating your data into actionable insights aligned to your broader business strategy is founded upon strong data analysis. In turn, social media ROI can be maximised over time to accelerate business growth. For example, social media posts featuring two or more of your product photos may result in higher conversions; or giveaways may consistently outperform your alternative content types. These data-led insights will strengthen business intelligence, and provide a firm foundation for future growth.
Starting on the right course to demonstrating social media ROI can be seamless through the creation of an optimal measurement framework, which utilises the supportive capabilities of native analytics tools available within social media platforms, or a third-party social media management tool. Hootsuite Impact, for example, provides actionable recommendations based on the content types, themes, campaigns and objectives that deliver the best return on investment in social media.
Another great way to monitor the business impact of social media is the complimentary ROI calculator available on the Hootsuite website.
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