July 27, 2023
Companies are using social media marketing more than ever to help them connect to potential customers. According to a report in Harvard Business Review, social media marketing comprises almost a quarter of today’s marketing budgets. For many companies, that figure will jump to a third over the next five years.
Most chief marketing officers (CMOs) and other marketing leaders are convinced that social media is a good investment. But when you ask them how much they are spending, or what the return on investment (ROI) is, they aren’t quite so confident. In fact, fewer than half of marketing leaders are confident that their social media campaigns are paying off in the way they had hoped.
That’s because when it comes to social media marketing, generating great content is just the beginning. Your team also has to know exactly how much you’re budgeting on your social media campaign and determine whether it is producing the desired results.
What’s the best way to accomplish all this? Here are some tips to make sure you're getting good ROI on your social media marketing.
Working with your in-house team or outside editorial consultants, you’re creating content that you think will connect with your potential customers. How do you know if it’s doing the job? That’s where ROI comes in.
ROI matters for several reasons. First of all, you can point to ROI to justify your company’s current spend on social media to the executive team. It’s much easier to explain your current social media spend — and advocate for an increased budget — when you can prove a positive ROI.
Second, understanding the success of your current marketing campaign is critical to building and refining your social media strategy for the future. Calculating the ROI for your social media campaigns shows you which ones are working and which ones are not. That allows you to shift your tactics and reallocate your resources to maximize the effect of your marketing efforts.
ROI also helps you create content that resonates most with potential customers. Since ROI can be calculated campaign by campaign, it can help you understand which types of content are helping you reach your goals.
In a poll of 1,200 marketing experts, HubSpot reported that 22% of marketing teams said one of their biggest challenges is creating engaging content. Roughly the same number said they were struggling to reach their target audience, and/or drawing a blank when it came to generating new ideas for content that led to conversions.
Understanding ROI helps you create a content marketing plan because you will have solid data proving which types of content work best for your company.
When it comes to social media, ROI can often be calculated with a simple equation. You can use this equation to calculate the ROI for a single project — such as a stand-alone campaign on Instagram — or your entire social media budget.
Start with the amount of money a campaign has brought it (more on this below), then divide that by the amount of money you spent. Finally, you multiply that amount by 100 to get the percentage increase.
Here’s what this equation looks like:
Return – Cost / Cost x 100 = ROI
All you have to do is plug your own figures into the formula. For example, if you spent $50,000 on a social media campaign that brought in $200,000, you would calculate your ROI like this:
$200,000 - $50,000 / $50,000 x 100 = 300%
That would be an ROI of 300% — considered a good return on your investment. That percentage simply means your profit was three times the cost of your campaign. Most companies would call this a successful ROI.
On the other hand, a negative ROI indicates that you lost money on a campaign. Simply put, your investment was higher than your return.
This equation works best for companies that measure their returns in sales. But depending on your marketing strategy, there are other ways to measure ROI that might work even better.
According to the market research company eMarketer, most companies measure social media ROI using five different metrics: engagement, inbound, efficiency, conversions, and impressions.
Here’s what we mean by each of these terms:
Engagement. This is how your audience connects to your content, whether it’s clicks, comments, or shares.
Inbound. This refers to the time users spend on your website, app, or other owned properties.
Efficiency. This is the benefit you get from your system running more smoothly. An example might be cost savings on customer support calls.
Conversions. This is an interaction with a customer that results in lead generations, newsletter sign-ups, direct sales, or other deals.
Impressions. This is similar to engagement but requires less participation from the prospective customer. It’s often measured in total likes or views.
According to eMarketer, about 36% of companies measure the performance of their content by analyzing Engagement, while 18% use the Inbound or Efficiency metrics. About 17% examine Conversion, and 11% monitor Impressions.
Although most of these metrics don’t measure sales, it’s possible to use the formula we discussed above to measure ROI. Take conversions, for instance. If one of your social media campaigns generates 1,000 leads, and you know that 15% of leads are converted to sales, you can easily plug that information into the formula to determine the campaign’s ROI.
There are many other metrics that can give you important information about your social media marketing ROI. It all depends on which ones align most closely to your company’s overall goals.
When you’re looking to improve a campaign’s ROI, here are several steps you should take:
Let’s say your primary objective is to raise brand awareness. That puts you in good company: According to the most recent CMO Survey, 93% of companies use social media to build brand awareness.
But measuring your company’s brand awareness can be a challenge. Instead, you might want to zero in on what you want to achieve through brand awareness. One way to think about it is whether you’re focused on improving your current operations (for example, retaining current customers) or finding new growth opportunities (acquiring new customers or identifying new customer groups). Knowing this will help you decide how you measure success.
Instead of — or perhaps in addition to — brand awareness, your focus might be brand promotion. About 72% of companies put this at or near the top of their list. And 64% of companies use social media to introduce customers to new products. It all depends on your company’s overall strategy.
Most metrics will tell you something about your social media campaign, but is the information useful? If you are measuring metrics that don’t tell you how close you are to your goals, it’s wasted time, energy, and money.
For example, if increasing the number of conversions is the goal of your social media marketing, tracking engagement by looking at website traffic or app usage will give you some interesting data, but won’t tell you anything about conversions. You should be tracking leads generated, newsletter sign-ups, or even revenue generated.
Putting thought into your metrics pays off. A study by Demand Marketing showed that companies that identify their goals and measure the right metrics can see their social media ROI nearly triple.
You’ll probably be anxious to see the results of your social media campaign, but make sure you give it time. According to LinkedIn, 77% of marketers make the mistake of measuring ROI just a month into a campaign. This is counterproductive because the typical sales cycle is longer than three months.
Allow enough time to go by so that you can be confident in your results. Only 4% of marketers measure ROI over six months, which means that they are missing out on long-term results.
Know the difference between KPIs (key performance indicators) and ROI. KPIs are goals you set for a campaign, along the lines of “increase downloads by 10%,” which should be continually reassessed and adjusted along the way.
On the other hand, ROI is a way to judge the success of an entire campaign. It’s a key measurement that will help you hone your future social media marketing.
Is your content resonating with your customers? If you can’t answer that question, you probably aren’t digging deep enough into the data you’re collecting. When you measure ROI, you’ll learn who your customers are, what platforms they prefer, and what types of content speak to them.
For every piece of content you create, you should know why you are posting it, how it fits into the bigger picture, and what you want it to accomplish. ROI helps you with all three of these goals.
One last piece of advice: The more your content captures the attention of customers, the better your ROI will be. It’s a virtuous cycle that continues to pay off long after a campaign wraps up.