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How to Calculate Social Media ROI

By , Vice President of Brand Engagement, Hanson Dodge

June 24, 2015

Advertising is a multi-dimensional universe we live in and the world of social media is just as complex. The space is filled with channels, platforms and swiftly changing technologies — alongside tumultuous consumer preferences. For each opportunity, there is a broad selection of techniques and approaches. Determining the best approach for your business is a game of chess based upon your competitive set and industry position.

For some industries, the focus is on the fundamentals: content, community management and reporting. For other industries, the atmosphere is robust, optimizing business initiatives based on consumer insight from social media monitoring. And then there are the frontrunners that embrace the hype of each new platform, understanding that some may fail. Regardless of where you are in the world of social media, each intersection and decision should be supported by data that leads to business impact.

There are a number of ways in which a company can calculate the return of their social media initiatives. That’s why “the ROI of social media” appears so elusive and lacks standardization in the industry. Whether you’re a B2B or B2C brand, the process starts with a clear understanding of your strategy, goals and KPIs.

If you haven’t already documented the strategies driving your online initiatives and specifically stated the intentions of each digital channel, now is the time. According to McKinsey Research, the web will influence more than half of all retail transactions by 2016 and represent a potential sales opportunity of almost $2 trillion. Given that opportunity, clear measurement is critical to success.

In order to showcase a couple of the ways social media ROI may be calculated, consider thinking from two business scenarios: one that applies to retail or digital commerce sales (B2C) and another where the sales cycle relies on channel distribution (B2B). Keep in mind that these are only two ways you can calculate social media ROI. Every company will incorporate the values for each calculation and apply specific metrics to their specific business

Method 1: Digital Commerce and “Last-Click” Attribution

If your company is performing e-commerce, social media ROI can be measured via direct, last-click attribution on Google Analytics. Ensure that you have properly set up Google Analytics to accurately track conversion values by adding a conversion tracking code to your website. As you can see below, direct traffic that comes from social media and converts through a purchase will attribute each individual social media site for that conversion value.

Social Network Google Analytics Image

However, unless you are strictly using your social media sites to drive revenue (B2C) or other conversion events such as form fills on your website (B2B), online conversion may not be the only valid indication that social media has delivered ROI. The intent of a corporate social media presence should always be rooted in the value achieved through dialogue and the brand-champion-building opportunities within your community. The last click attribution to driving revenue is essential as well, as long as you do not lose sight of tracking success on your awareness-building KPIs.

How companies engage customers in digital channels matters profoundly — not just because of the immediate opportunities to convert interest to sales, but also because, according to McKinsey's digital consumer journey, two-thirds of the decisions customers make are informed by the quality of their experiences throughout their purchase decision journey.

Social channels no longer just represent “a cheaper way” to interact with customers; they are critical for reaching highly targeted audiences in order to execute promotions, facilitate change, drive inspiration and stimulate sales. Take, for example, how Facebook and Twitter have transformed their models into ad platforms and the ways brands are using social ad opportunities to reach their audience as they browse their news feeds. These advertising tactics are one touch point throughout the consumer’s journey on the way to purchase. An accumulated set of these impressions is what ultimately leads the consumer to buy when the time is right.

Content Bubble

A combination of awareness, engagement and revenue-driving tactics to deliver greater reach and move people closer to purchase is recommended. Calculating social ROI with last-click attribution is shortsighted due to the multitude of brand experiences and touchpoints a consumer sees throughout his or her buying process. For example, according to a study done by L2 Think Tank, consumers who see user-generated content on the path to purchase have a 4.6% higher conversion rate than those who don’t. Although a myriad of stats are available to support the value of your social presence, none will be relevant unless it applies directly to the lift in your business.

An example of a conversion path can have many entry points to the website over time. See how this user interacted below, visiting the website first from a paid search, then came to the website directly (typed in a URL), then visited via paid search, again. As you can see, the journey to purchase for this specific customer was very complex, including a visit from social media. Yet, the final purchase via last-click was attributed to paid search.

Conversion Path Google Analytics

Method 2: Modeling Impact on Path to Purchase

How does a company measure ROI when it doesn’t sell direct online? Conclusions may be drawn from known information, such as website traffic and offline sales revenue.

Hanson Dodge Creative has developed a formula for calculating social media’s likely impact on a consumer’s path to purchase. The formula looks at correlative data to determine whether an aggressive or conservative formula for attributing social media’s contribution is warranted. These data points vary considerably based on product, industry and the like. Data sets can include online metrics such as website traffic, brand relevance, social media reach and engagement, average order value, complexity of the purchasing decision, impact of online influences and other factors.

Example equation:
Revenue / Total web visits = Revenue per visit
Then apply this calculation to your social traffic.

Based on this correlative data, we’re able to arrive at a reasonable determination of social’s impact on revenue — and thereby a numerical expression of the return on investment in social media programs.

As a reminder, we always recommend properly installing Google Analytics in order to more accurately track conversion from your social media and general digital marketing initiatives. But even in situations where analytics do not tell the whole story, “we don’t know how to track social media’s impact” should never be an acceptable answer from your internal teams or your agency.

Interested in learning more about how we can help your company measure ROI on your social media efforts? Contact Hanson Dodge Creative to get the conversation started.

Sarah Collins, Vice President of Brand Engagement, Hanson Dodge

Turning content into results, Sarah is responsible for leading the company's social media practice and digital activation projects. Her team engages audiences across a variety of communication channels, focusing on digital campaign strategy, content and analytics. Sarah began her career in music marketing and then honed her interests to online PR, SEO and digital marketing. Sarah has been immersed in the digital landscape since social media put its first mark on the map and she is an authority speaker on the topic of content. Through a variety of agency positions, Sarah’s experience encompasses brand activation, content strategy, SEO, online PR, social media strategy and relationship management.

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