The Science Behind Social Media ROI

As your business grows its social media presence, it’s important to understand how to measure its success. Read today’s post where our Marketing Analyst, Ashley Moreno, discusses the nuances of social media ROI.

Any time a business stakes a presence in a new marketing channel, it’s a natural inclination to see how that channel is performing, and more importantly, how it’s affecting the overall strength of the business. And while this may seem less cut and dry when it comes to social media, it’s still important for you to see the growth within the social media communities you’ve selected. Even more, you’ll want to take those findings and adopt optimization techniques to help fine-tune how you’re engaging with your social communities.

In my most recent social media analytics post, we looked at a few of these techniques and discussed best practices around aggregating such metrics. But what it boils down to is this: there are really two types of goals and related metrics around social media measurement:

  1. Goals and metrics that speak to success or adoption of a selected channel
  2. Goals and metrics that speak to how that channel affects the business

Today, we’ll discuss the second — and in doing so, address the common question: How do businesses measure Social Media ROI?


Social media has no ROI

It should come as no surprise that businesses struggle to measure the “ROI” of social media. Because as Sean Jackson, Copyblogger Media’s CFO would argue, there is no ROI in marketing — social media included.

“A pure definition of ROI is simple to quantify: ROI = (Gain from the Investment – Cost of Investment)/Cost of the Investment,” says Jackson. The problem for marketing professionals is that marketing activity isn’t an investment. In true business terms, an investment is an asset that you purchase and place on your Balance Sheet, like an office building or a computer system. In other words, an investment is something you could sell later if you didn’t need it any more. Unless your organization uses Enron style accounting (circa 2001), every marketing effort you pursue is an expense in time, money and resources…it’s not an accounting asset.”

Given how often I read about “the ROI of social media,” I would agree that changing the way that businesses perceive marketing, and by extension social media, is the first step towards accurately discussing how it impacts a business.  For example, it’s this ROI-style of thinking that leads folks to try to calculate the “value of a fan” — some dollar value that embodies the worth of one person connecting to you on Facebook. But if all this is the wrong way, then what’s the right way?


Social media marketing as a function of profit and efficiency

In his blog, Jackson calls the following the “modern measurements” for marketing:

  • Engagement
  • Frequency
  • Reach

I’d agree, and I think most would agree, that those are a good starting point. And why not? Most marketing campaigns are measured by how many people they reach and how often.

Just like with a traditional marketing effort, you’d want to take information around social media reach and engagement, and then try connecting them to conversion-related metrics, such as: sales, content consumed, community growth, leads generated, etc. This is also what Jackson recommends:

If sales cycles are decreasing — in other words, it’s taking less time to go from stranger to paying customer, show that. If referrals are up, highlight it,” Jackson says. “Measure the ways marketing is making your company more profitable by making the sales cycle more efficient.”

Now let’s apply this idea to social media by looking at a few examples that could help you show how social media may reach or engage people in a manner that either improves efficiency or profit.


Contrasting frequency, reach and engagement with profitability and efficiency

Many aspects of social media make it unique from other types of paid media — for example, it often carries more weight than other mediums because of its candid nature and the way it fosters referrals among family members and friends. Not to mention, people will often engage with social media willingly while they often avoid other forms of marketing.

Depending on the goals of your business, or more specifically the goals of your business’s digital presence, consider comparing metrics like the following for persons who arrive at your site via social media vs. other marketing channels, as well as via certain posts and certain social media channels:

  • Average cart order
  • Leads/visit
  • Time on site/visit
  • Email captures/visit
  • Video completions/visit
  • Articles/visit
  • Average number of orders
  • Days since last visit
  • Frequency of visits
  • Average days to convert

The conversion-related metrics will help you form a case that your social media efforts are leading to more profits. The last few help form a case for how social media expedites the conversion funnel and leads to more engaged customers, faster.

While most analytics solutions will give you domain-based (i.e., tell you a visit came from Facebook or MSN or Twitter) metrics out-of-the-box, you’ll need to tag the URLs used in posts with query parameters that your analytics solution can read to get post-specific data. If you use Google Analytics, then use this one. Other solutions work very similarly: you add information to the end of your URL that sets campaign information in your analytics tool.

As you continue to understand how social media fits into your sales funnel, also consider that social media often plays more of a supporting role rather than a single-visit converting role. Keep in mind that most analytics products attribute conversion to the source of the converting visit, even if the person previously visited. Organizations with high-dollar items and longer sales cycles should take extra caution to understand their complex funnels as best as possible.

For example, I might see a new pair of shoes that my friend posted on Pinterest, click through, and buy them on the spot. But I probably won’t see a tweet and then order a new dryer. That doesn’t mean that Twitter isn’t important to a big box appliance company. This is why most analytics solutions allow you to examine common conversion paths, and will even aggregate both conversions and what in Google is called “assists” — visits by source from visitors who ultimately converted down the road.

To get started, look at the sales funnel in your analytics solution:

  • What sources brought in users previously who then ultimately converted in a later visit?
  • Were any of them social media sites?

Now segment on those users.

  • What pages did they look at?
  • What videos did they watch?
  • On what pages did they land and exit?
  • Can you glean anything from their activities on your site that would help you better understand where they were in the sales funnel when they arrived?

Use that information to improve your engagement on that assisting channel.  Then, look for incremental lifts in the metrics described above, such as days to close or average order value. Are you getting more efficient? These sorts of incremental improvements are key to maximizing the benefits of social media and showing in what ways it contributes to your organization’s success.

“Discipline,” Jackson says, “is the secret ingredient of success. Disciplined organizations find what works and also focus on improving it. They’re not distracted by the ‘new and shiny.’” Continue to optimize for efficiency and profit. Consider other places this could be applied as well — for example, risk management and customer service. If you’re new to social media and unsure where to start, then try a service like FlipTop. They map emails to social media profiles, which will tell you where your customers are so you’ll know where to focus.


Huge thanks to Ashley for providing our readers with detailed insights.

Have more questions? Feel free to leave them in the comment section below and we’ll be happy to get back to you.

Happy selling!


Ashley was a Senior Analyst, Digital Analytics, at Volusion. She has a BA in English from UT at Austin, an MLA from St. Edward’s, and over five years experience as a web analytics practitioner.

2 Responses to “The Science Behind Social Media ROI”

  1. Pam Johnson

    No question, measuring Social Media is an ongoing dynamic process. It’s clear that managing a client’s expectations surround social media is very important and also that using creativity to uncover the relevant KPI’s for each individual business is critical. No doubt in 6 months we will have different ideas about metrics than we do now. Adapting will always be key. Thanks for your insight. I continue to learn so much.

    • Ashley M.

      Agreed, there’s no exact method or set of metrics that are best for every business, and certainly no exact process or metric that will work forever. I’d love to read more from folks on how to set client and stakeholder expectations around the importance of an iterative process. No doubt that has its set of challenges as well. Thanks Pam — so glad you found this helpful!


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