Calculating the Value of Social Media Returns on Investment

March 2016

Calculating the Value of Social Media Returns on Investment

Business owners and decision makers must know the value of their investment in all areas. That applies to merchandising, hiring, product selection and, of course, marketing. If you’re not able to calculate the value of your return, you have no way to determine whether something is working well, working somewhat, or was even worth the time and effort you invested initially. This is particularly true in the world of social media marketing, where calculating the value of your return can be incredibly difficult.

The Trouble With Calculating Social Media ROI

Before we touch on calculation methods, let’s cover one very significant caveat. Social media ROI cannot always be expressed in terms of monetary value. It’s more complex than that. While you can assign monetary values to the results of your SMM campaigns, those values are often arbitrary. After all, can you really determine the true value of an additional 25 followers to your Facebook account per week over the course of a month? You can probably get close, but it won’t be truly accurate.

The ROI Formula

There’s a simple formula used throughout the business and finance worlds to determine the value of a return on a particular investment. It looks like this:
Return – investment / investment %
When applied to social media, however, things get a little murkier. Sure, you can easily determine the investment you made. How much did you pay an employee to manage your accounts? How much did you pay for content that was exclusively shared with your social media audience? Add up the numbers and you’ll have your investment amount.
Now, what about the first part of that equation, the return? Measuring the return with SMM can be very difficult, as mentioned above, since so many goals don’t translate directly into financial terms. Social Media Examiner has some excellent insight here. “Social media return is the value you derive from your social media campaign… [Let’s] say your goal is to drive consumer insights. In this case, your social media return is the quantity and quality of the consumer insights you get from your fans and followers.” So, the first step in calculating the value or your return is to actually quantify what that return is. Then, you have to translate that into financial terms. Each return will have a different monetary value, and you must develop a quantification solution on your own for each individual return type. Your quantification may be very different than another company’s, as well.
To use the consumer insights example, you would need to know the value of those insights based on information from focus groups based on the cost inherent to them.
Once you’ve determined the return (in monetary terms) and your investment, you can put the rest of the ROI formula into play and determine the actual value of that return. To really figure out how valuable social media is, though, you’ll need to compare the value of your SMM return to the return offered by other marketing methods (print, radio, TV, etc.).

Calculating the Value of Social Media Returns on Investment by Chris Tomlinson




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