Is your business really benefiting from your social media presence? If you’re like many entrepreneurs and marketers, chances are you’re not sure.
Social media is an essential part of digital marketing—so much so that new business owners will often create a Facebook page before they even have a website. But calculating and measuring ROI for social media isn’t as widely understood.
That doesn’t make it unimportant, however. In fact, if you aren’t measuring your return on investment from social media, you’ll have no way to know if your social strategy is paying off. And when you’re paying for ads, ROI is even more critical.
If you aren’t sure how to measure ROI for paid social marketing, you’re in the right place. Here we’ll discuss what ROI means for paid social media and how to calculate it. For everything you need to know about ROI measurement for paid social media marketing, keep reading.
What Is Paid Social Marketing ROI?
Return on investment is basically how much money you’re earning compared to the amount you’re spending to earn it.
In paid social media marketing, your ROI is whatever you’re earning from your paid social marketing campaigns compared to what it’s costing you to run them. If you’re earning more than you’re spending, that’s considered a good ROI.
In most discussions of ROI, the return on investment is usually thought of in terms of money. However, for social media marketing, the immediate return doesn’t always take the form of cash.
You might measure ROI in the form of audience growth, email list sign-ups, or even the number of customer complaints resolved. Returns like these can result in increased income in the long run, even though they don’t pay off immediately.
However, you don’t want to make the mistake of getting distracted by vanity metrics. For most campaigns, increasing your number of Facebook likes won’t be a truly valuable objective. You want to focus on metrics that lead to profit.
Why Is Measuring ROI Important?
If you were simply running an Instagram account as a hobby, measuring ROI wouldn’t be that important. But as a business owner or marketer, you can’t afford to spend time and money on things without tracking the results of your efforts.
Paid social media marketing involves a few different kinds of costs. There’s the ad spend itself, but there are also costs involved in creating content, landing pages, and whatever else goes into your ad campaign.
If you aren’t sure how what objectives were reached or much money was made from your social media ad campaign, you can’t be sure it was worth your investment.
But if you’re carefully keeping track of how much you spent relative to what objectives were reached and how much you earned, you can gauge whether your efforts were successful and improve your tactics over time.
How to Calculate Paid Social Marketing ROI
ROI is a ratio, but it’s usually expressed as a percentage. For example, if you spent $1,000 on a social media ads campaign and earned $1,500, the ROI would be 50%: you earned 50% of the value of your investment after breaking even.
The most basic formula for calculating ROI is this:
Revenue minus investment divided by investment equals ROI percentage
The revenue from a campaign is the amount of money generated from it. The investment is the amount of money required to create and run the campaign. Then, the ROI is the percentage representing what you ultimately earned.
Going back to our earlier example, you would use this formula by subtracting $1,000 (investment) from $1,500 (revenue), which equals 500. You would then divide 500 times the investment cost, 1,000, which would give you 0.5, or 50%.
Of course, if the return from your ad campaign didn’t take the form of cash, calculating ROI isn’t as straightforward. Instead, you could estimate the monetary value of the actions your campaign generated to describe your revenue.
For example, your ad campaign might have generated 1,000 new leads for your email list. You might estimate that each lead is worth $20 on average over the course of a year. So your campaign would have contributed $20,000 in value to your business for that year.
How to Attribute and Quantify ROI
It isn’t enough to know that your business earned an extra $10,000 during a campaign. You need to know where that $10,000 came from so you can repeat and improve your results.
Did the majority of your new customers come from Facebook? Which ad did they respond best to? Once you know the answers to questions like these, you’ll be equipped to optimize future campaigns for even better results.
The best way to tell how different actions were generated (such as purchases or email list sign-ups) depends on the platforms you’re using.
For example, if you use Facebook Ads, you can use the Facebook Pixel to track activity and conversions on your web pages. Google Analytics lets you set up attribution systems for different kinds of strategies.
Up-Level Your Paid Social Marketing Strategy Today
By now you know everything you need to start measuring ROI for your paid social marketing campaigns.
But when it comes to effective social media marketing, this is just scratching the surface. To get real results from your campaigns, it isn’t enough to read up on the latest marketing tips. You need people with true expertise working for your business.
That’s where Drive Social Media can help. We’re an agency that knows how to help a business boost its profits with social media. To book a free consultation and begin increasing your marketing ROI, contact us today.
