Social media ROI is nothing but a numbers game

by · March 3, 201426 comments

Every time a marketer says that social media ROI isn’t important or doesn’t tell the whole story, a piece of their career potential dies. I will be the first to tell you that social media ROI isn’t the end all, be-all metric. But I will tell you that it is one that absolutely can’t be swept under the rug or forgotten. You may not care about ROI, but every person who has real influence over your career cares…and they care A LOT. So we need to embrace it and figure out how to get the numbers that would actually give us a chance to get that seat at the executive table. Think that’s malarkey? The distrust from CEO’s is extending to the entire marketing team up to the CMO and the top reason is inability to deliver ROI. In essence, not figuring this out could impact your career trajectory.

So how do we fix it?  We’re going to have to accept our reality that we need to be able to tie social media to an impact on customer acquisition. Sure you can tout customer service savings and other types of cost based results, but you’re going to have to bring a huge volume of conversations for that savings to really mean something to the leadership team. But the minute you start generating leads and adding new customers with a reasonable volume at at a reasonable cost, ears start to perk up. Stop trying to fight it, just accept it as the reality of the world we live in. I’m not going to say it’s right, it’s perfect, or that it’s ideal. But I will say that social can do it, and it can do it pretty well if you know how to approach it.

ROI DiceStep 1: Understand the math

When it comes to generating ROI, social media isn’t any different than any other marketing channel. You have to combine the right mix of audience size and conversions to generate the intended result. The general online rule I’ve heard is that 1-2% of the audience will convert on any type of advertisement. Think about that for a minute. If that holds true (which for most of the companies we work with it does) only 1-2% of your social reach will click through on any link you post. It doesn’t matter whether you deliver the offer in an ad or status update. You can expect 1-2% of the “reach” to click through.

Let’s run through the numbers on that for a minute. You have a certain amount of followers. Then we need to adjust our audience size to accommodate for those who will actually see our message. Facebook puts an average organic reach of 16% of fans and honestly if you look at Twitter, YouTube or any other channel it’s pretty similar. Tweets go by pretty quick and who seriously subscribes to a YouTube channel these days? So we’ll use 16% as an example for illustration purposes.

# Fans, Followers Estimated Organic Reach for a Status Update (16%) Number of anticipated click-throughs (1% CTR)
1,000

160

 

1.6
10,000

1,600

 

16
100,000

16,000

 

160
1,000,000

160,000

 

1,600

That looks fairly decent at the 100k and 1 million reach level, right? Hold on a second. That number is just the amount of people who click on the link in your post. We still need to convert them into a lead. There is still a significant amount of fall off from there.  The industry average I hear thrown around is that a 2% landing page conversion rate is considered good. This could widely vary based on a ton of factors, but let’s say your achieving average performance.

# Fans, Followers Estimated Organic Reach for a Status Update (16%) Number of anticipated click-throughs (1% CTR) Number of landing page conversions (2% on average)
1,000

160

 

1.6

0.064
10,000

1,600

 

16

0.64
100,000

16,000

 

160

6.4
1,000,000

160,000

 

1,600

64

Are you catching on now? You need to reach a crap ton of people before you are going to really get the kind of volume that will come close to making a difference. You aren’t going to be able to circumvent the need for achieving reach in order to deliver ROI. Clearly there is a lot more to this. You need to have a compelling message and deliver it in the right time and right place, but considering the averages you can’t ignore audience growth and attaining viral reach as part of the overall strategy for being able to deliver ROI.

Step 2: Determine the reach you need to get the results you want

Now that you know the kind of reach you’ll need you can reverse engineer the math for yourself. How many conversions to do you need? 250?

The formula is (the number of leads you want / average landing page conversion rate) / average click through rate. So in our example, based on averages it would be (250 leads divided by 2% landing page conversion rate ) divided by 1% click-through rate. HT to Jason Spooner for figuring out the math for our team!

This means you would need 1,250,000 reach to generate 250 leads.

Don’t forget that you can absolutely beat the averages by optimizing and targeting your advertising, but I’m a fan of under-promising and over-delivering, rather than ending up with egg on my face.

How can you turn the numbers in your favor quickly?

Step 3: Adjust the levers you can control

The easiest thing to control is the reach of your social posts that are designed to deliver conversions. Advertising is the best way to do this in a controllable way. Marketers can use the various segmentation options to control how many people see their posts. The other way to increase reach is far more difficult to predict and control. It’s getting viral reach, or as some call it “going viral”. If you’re willing to stake your reputation on “going viral”, well good luck. You might find yourself in the unemployment line. Organic viral reach is very difficult to predict and control. It’s awesome when it happens, but it’s icing on the cake. Good marketers are in the business of being able to predict and deliver results close to those predictions.

Step 4: Increase your odds with retargeting

The other missed opportunity is to use retargeting ads to our following. They already like us, they are engaging with our content, let’s take the sale off the social channel into a forum they expect: advertising. You can place retargeting ads on Twitter, Facebook and through the Google display network. There are others, but those are likely your best bets. Basically this lets your advertising stalk the people who’ve clicked through your links and visited your site. They will see your ads on any site that is in the advertising network. Think I’m on CNN or Huffington Post or some other website and I see your nice little banner ad driving me back to your landing page. This will allow you to drive more conversions from the audience that didn’t convert the first time. And it could get really crazy if you start using TRKS.IT links because you can do retargeting specifically based on the content people engage with and it works even if they click on a 3rd party link. For example, I share an article on Twitter to a Mashable article about social media ROI; I can remarket to you with ads about measuring social media ROI that take you back to my landing page.

If you aren’t seeing average conversion rates something is broken

I’ve seen a lot of profiles in social that don’t see near these conversion rates and I see others that get 6-15% click-thru-rates and up to 20% conversion rates. When I look at what is different between them, I consistently find it isn’t the channel. The top performing channels have marketers that truly understand their customer and prospect’s needs and expectations from the social channel. They use this knowledge to create phenomenal content strategies to drive engagement, which creates ridiculous levels of organic viral reach. This understanding didn’t come over night; they conducted significant testing on messaging, on creative and everything in between to find the right combination. They also have marketers that are able to strike an important balance between promoting themselves and adding value to the community. Customer acquisition in social requires as much if not more optimization than other types of online advertising because the hard-sell approach doesn’t always win. Don’t expect that what works in pay-per-click campaigns is going to work in social. Most likely it won’t.

Don’t forget that you are still managing a community

Just because we need to show a quick ROI on our efforts, doesn’t mean we get to become jackhats to our community. We can’t constantly berate them with our stupid offers that only serve ourselves. But if we add value 80% of the time by sharing great 3rd party content, it earns us the right to share posts designed to drive leads 20% of the time. That’s a trade off our community should respect.

What about you? Have you reverse engineered the numbers to deliver the ROI you want?  Have you ever thought about social media ROI in this way? What are you doing to deliver ROI? Leave a comment and let’s start a conversation!

Disclaimer: SME Digital is an investor in TRKS.IT

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About Nichole Kelly

Nichole Kelly

Nichole Kelly is the CEO of Social Media Explorer|SME Digital. She is also the author of How to Measure Social Media. Her team helps companies figure out where social media fits and then helps execute the recommended strategy across the “right” mix of social media channels. Do you want to rock the awesome with your digital marketing strategy? Contact Nichole

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Comments on Social Media Explorer are open to anyone. However, I will remove any comment that is disrespectful and not in the spirit of intelligent discourse. You are welcome to leave links to content relevant to the conversation, but I reserve the right to remove it if I don't see the relevancy. Be nice, have fun. Fair?

  • http://indispensablemarketing.com/ Patrick McFadden

    Nichole powerful opening statement, “every time a marketer says that social media ROI isn’t important or doesn’t tell the whole story, a piece of their career potential dies.” The goal is not to get good at social media (unless that’s your hobby), the goal is to be remarkable at business because of social media.

    No one would remember the Good Samaritan if he’d only had good intentions – he had money (conversion), too.

    I personally would have no interest as a business owner in social media if it didn’t improve the way I conduct business.

    • Nichole_Kelly

      Patrick – Clearly, I’m biased, but that was my favorite line in the whole post. :-) Agreed, a tie to business objectives is very important for getting buy in. Thanks so much for commenting and being a regular participant in the conversation. It really means a lot to hear your feedback. Have an awesome day!

  • http://www.ChristopherSPenn.com Christopher S. Penn

    While I love the emphasis on tuning performance and social’s abysmal reach numbers, I will suggest that you include some discussion of cost, since ROI is fundamentally (earned – spent) / spent. In the example above, 250 leads could have cost you $1 or $1,000,000, and the earnings from those leads could have been $2.50 or $25,000,000. If I earn $2 for every $1 I spend, I’ll spend that $1 as often as I can, even if my CTR is 0.064% (which I obviously would want to improve). If I earn $1 for every $2 spent, even a 100% CTR means I’m going broke.

    • Nichole_Kelly

      Chris – Excellent point. This is absolutely a critical part of the analysis. Thank you so much for bringing it up. We need to ask, “what budget will it take to get the return I’m hoping for and how does it compare to the return I would get spending it in another channel? What is the opportunity cost? And ultimately what is the conversion rate to sale?” Ultimately, we need all of those numbers to do a true ROI analysis. We can estimate budgets for the spend, but unfortunately, the conversion data comes after the fact and it harder to predict. But if we’re measuring along the way and optimizing our results we should be able to get some quick analysis to figure out what the results look like from an acquisition stand point. It also really depends on the business model. If it’s a B2B sale that includes a sales team and a 3-6 month sales cycle there are a lot of factors that go into closing the deal that marketing can’t control and it will take awhile to get the data to know how much money you earn on the back end. However, we can use anecdotal data from the sales team in terms of lead quality and the impact on revenue pipeline to help bridge the gap for a little while. In B2C, many industries have a quick sales cycle which makes the analysis to customer acquisition much easier to measure faster than in many B2B models. Thanks so much for commenting Chris! Hopefully we can catch up at SXSW!

      • http://www.ChristopherSPenn.com Christopher S. Penn

        Definitely – in most of the B2B models I’ve set up, I “amortize” the value of a lead with a rolling 3-6 month window (depending on length of sales cycle) so that you can still catch that same rough estimate.

        Sadly, no SXSW for me… the ROI isn’t there for me!

        • Nichole_Kelly

          That makes sense from a forecasting perspective Chris. Bummer on SXSW. We’ll miss you!

  • http://donaldproy.com/ Don Roy

    Great article, Nichole. Your call to understand the math is crucial. So much emphasis is put on content (quality and quantity) as a driver of social media success. Your illustration reminds us that great content will have little or no impact without sufficient audience reach. Content can play a role in building audience size, for sure, but we cannot ignore reach and click through- measure outcomes, not activity.

    • Nichole_Kelly

      Don – Thank you so much! Yes, I was hoping to bring forward the concept that when it comes to ROI, activity is not always a good predictor of return. I’m so glad the post resonated! Thanks for commenting.

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  • http://www.buzzmaven.com/ Scott Clark

    Excellent. I bring up these metrics in the first meetings I have with potential clients – their reaction helps me decide if the project is a good one or not. Because, while it is a numbers game to some extent, it’s first a culture change game for many companies. Furthermore, the numbers (on reach, and CTR) seem to reflect a relatively untargeted effort, right? If audience segementation is done to initial posts, along with retargeting efforts, I think the CTRs and conversion can be much, much higher. You align audience with campaign, and reap engagement and conversion. But look at what I said here…it takes more advance work to develop the social campaign, which IMPLIES trust and tolerance at the executive level for the hours needed to do this. Here, as I have recently written about, is the problem. Many marketers, in an effort to save their jobs from clueless old-school marketers and executives without Facebook accounts (who are signing their checks!) forgo the initial engineering task because they need action… You have to ask your clients/boss for a leap of faith to allow pre-engineering of campaigns to escape the terrible mathematical realities you’ve pointed out in the article.

    • Nichole_Kelly

      Scott – We have absolutely seen much higher click through and conversion rates with optimization and segmentation. But I’ve also seen much lower numbers. Great points. Thanks for commenting.

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  • Evan VanDerwerker

    A great post. I’ve not faced the same pressure regarding executives expecting to see social media ROI calculated; however, I can admit that it would be a useful metric for on-boarding naysayers.

    Keep up the solid posts!

    Evan VanDerwerker
    http://www.vanderwerker.com

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  • http://jambhu.blogspot.com/ Timnas Indonesia

    No one would remember the Good Samaritan if he’d only had good intentions – he had money (conversion), too poker online. I personally would have no interest as a business owner in social media if it didn’t improve the way I conduct business.

  • http://www.juntaedelane.com/ Juntae DeLane

    Nice article Nichole! Goal setting is important. I wrote a similar article outlining 5 quick tips for achieving social media ROI: http://juntaedelane.com/5-quick-tricks-achieve-social-media-roi/

  • Laura Gomez

    the excellent items, everything related to social media, it is very interesting, I share a website,: hoojobs.com it is very important theme in the media roi

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