A lot of people will tell you that there is no way to track the ROI of social media, I'm here to tell you that they're wrong. Wrong, wrong, wrong! But why are they wrong? I have a few ideas on that, the biggest of which is that they don't know what they're doing. Another reason could be that they think it's too hard and instead of admitted that, say it's impossible. Other reasons, I'll keep to myself, but I think you get the point!

If you take a look at the traditional formula for ROI you will see that it's rather simple:

ROI = [(return – investment) / investment ] *100

So, for instance, let's say that your investment was the $1,000 you spent on a radio buy, but it netted you a return of $3,000. All you would have to do is plug into the formula, like so:

ROI=[($3,000 -$1,000)/ $1,000]*100

ROI= 200%

Using the same formula we can covert it for use with social media, it would look something like:

SM ROI=[(sm return - sm investment)/ sm investment]*100

First, let's take a look at your social media investment. The investment can include everything from the cost of giveaways and social management tools to employee compensation and any IT related expenses. Yes, your social media investment should be pretty straight forward, it's in the social media return that some work needs to be done.

Before you can ever hope to calculate an ROI you must first decide what your social media return will be. Your return will fall into one of three categories, as the book, The Now Revolution, points out:

• Awareness
• Sales
• Loyalty

Keep in mind that you can, and should, track metrics for all three, it will give you a much better idea of what your actual return might be. So, pick a different return goal for each ROI category listed above.

Once you have the goal (your return) decided upon, now it's time to assign a metric to it. How will you track your return? What do you have, or are going to put in place to alert you when your goal is reached? For instance, if your goal is to drive more traffic to your website then it's just a matter of looking at your website analytics for social network referrers.

Using the example of website traffic, now it's time to decide what each of those are worth to you. That is, how much is each visit worth? To figure that out, take a look at the total number of sales income you had the previous 6 months from your social traffic (you can try fewer months but 6 will give you a more accurate number) and divide it by the total number of unique social media traffic. That number will help you to establish how much each visit to your website is. I would urge you though, that if you are using website visits as a goal, then you should reevaluate the worth of social visits about every 3 months or so because as you start to use social media the right way, you will notice that leads from your social networks will close higher and higher, thus increasing the worth of a social visit.

$175,000 (Total Sales) / 1,500 (Traffic) = $117 Each unique visit

Now that you have a worth associated with your return, it's just a matter of plugging it back into the social media ROI formula to figure out what your rate of return is.

Social Media ROI Example

First, let's chose a return goal from each category:

• Awareness - For this example our awareness goal will be to increase the number of mentions that are being said about us online, using a reputation management package such as SocialMention.com (free) or BrandsEye.com & UberVu.com(not).We've decided, through research, that a favorable social mention is worth around $50. While we understand that a blog post (and the creators reach) is worth more than a Tweet, we are only figuring averages here and a little on the low side.
• Sales- Our sales goal is pretty straight forward and if you are a car dealerships it's when you sell a car, part or service. In fact, we know the exact return here so there is no need to figure out what each will be worth. Even the metrics we need to track it are already in place, what business doesn't know when they make a sale?How do we know when a sale is a social media sales? Simple, we ask, 100% of the time. No exception. If it's from a lead on the website, we make sure that each lead is sourced correctly so that we can pinpoint which leads sold and where they came from.
• Loyalty - Our loyalty goal will be to increase the number of people that return to buy from us again and again. We do this by tracking a lifetime value impact and can attribute this to social media because we strive to connect all of our customer with our social initiative, that way we can build positive relationships with them that go beyond the sale. To figure out a return, we will take the average lifetime value before we started using social media and subtract if from the post social media figure. We can figure it even further by breaking it down per month, which will help us to figure out our ROI below. (While I'm not using it in this example, the Net Promoter Score is a great way to gauge your customers loyalty)

Now that we have goals (return) for each category, it's time to plug the variables into the social media ROI formula. Before we do that though, it's important to figure out how we are going to figure out how our total investment is going to be split up, among the three ROI categories. Once you do that, let's take out the calculator and figure this thing out!

The Numbers Below Are Monthly Numbers

• Awareness Social Media ROI = [($5,000 - $2,250)/$2,250]*100 Awareness Social Media ROI = 122%
• Sales Social Media ROI = [($25,000 - $5,250)/$5,250]*100 Sales Social Media ROI = 376%
• Loyalty Social Media ROI = [($15,000 - $3,980)/$3,980]*100 Loyalty Social Media ROI = 277%

Now you can put them all together, if you'd like:

Total Social Media ROI = [($45,000 - $11,480)/$11,480]*100 Total Social Media ROI = 292%

So there you have it, tracking social media ROI! There are others ways that this can be accomplished and other things to consider when tracking social media, so this is just one tool you should be using when deciding if what you're doing with social is giving you the results you have been looking for. Please keep in mind that the ROI ratio I've shown you here is a top level metric, what that means is that it will give you the bottom line but won't show you were you are going wrong, or where you are going right, but that's for another blog post.

David Johnson

Social Media Strategist

Social Media Workshops