To Measure Social Media ROI, Determine the Value of Your Customers

Monday - 18 November 2013

Once a business successfully measures its social media ROI, it can use the metrics to drive further changes to social media campaigns, Jamie Turner explains in An In-Depth Guide on How to Calculate the ROI of a Social Media Campaign.

Turner’s guide defines essential social media metrics like: Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC), and demonstrates how to use these metrics to test social media ROI success.

First, marketers should identify social media leads. The best way is to look at website analytics: determine where you customers come from and how much they interact with your site when they get there.

The next step is to find the CLV, or the amount of revenue a typical customer will generate for a company during his/her engagement with your brand. Use the following equation:

Step three: calculate CAC, or social media spending based on the value of new customers. CAC answers the question, “How much should I spend in order to acquire a new customer?” A good rule of thumb: CAC should be about 10 percent of the CLV. So, if your customers generate $2,000 in revenue, your company can spend $200 in social media marketing to acquire new customers.

Marketers can increase their CLV and gain revenue through media monitoring. To do this, track customers on social media and determine what products or services they want and engage with them in innovative ways.

Finally, use the “hub-and-spoke” system to calculate social media ROI and identify which social media sites work best for the company. The system involves using social media channels as “spokes” of the wheel, with your landing page at the hub (the center). When prospects get to the hub, a percentage of them convert to customers.

This percentage (conversion rate), combined with the CLV, determines your ROI. The conversion rate should also dictate goals for social media: if you want to obtain 1,000 new customers and you have a conversion rate of 1 percent, you need to drive 100,000 visits to the landing page.

These metrics not only determine ROI and help set a social media goals; they also identify areas in need of improvement:

  • Page views generated. If analytics reveal a certain network generates little or no page views for that landing page, you may need to enhance the content shared on that network.
  • Following/reach. Aim to maximize reach through engaging posts to obtain more followers and, eventually, customers.
  • Sentiment. Sentiment analysis is difficult and time-consuming when conducted through Google Analytics. However, some media monitoring services offer a simple way to analyze customer sentiment. You can use the sentiment of mentions to determine  your customers’ issues, whether it’s price, quality or a specific campaign.

Bottom line: to determine ROI, marketers must measure beyond page views and determine the value of their prospects. To increase ROI, identify areas that make it easier to convert prospects into customers during their visit.

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