The Real Social Media ROI Formula

You are most likely using social media to promote your business. You’re tweeting, you’re Facebook liking, and you’re starting discussions on LinkedIn. The million dollar question is…Are you tracking? No, it’s not a new social media site. I’m talking about tracking your social media ROI.

If you aren’t tracking, you are not the only one. Statistics show that over 70% of businesses do not track their social media ROI.  This is a crazy statistic when you consider that billions are spent on social media campaigns each year. You know you need to turn those social media mentions into an actual sale, but where do you start? Well, I am here to help and share with you the “secret formula”, so pay attention!

What’s Your Return on Your Social Media Investment?

Yes, social media will likely benefit your business, but you have to understand the beast first.

First Things First

Before the Internet, the traditional advertising methods were television, radio, print, outdoor, retail, and mail.  Let’s face it, there are tricks of the trade that every marketer knows uses to get a good return when using these mediums. Things like placing a print ad on the right edge of a page so people look at it when the turn the page or personalizing an envelope with the target’s name so they are more likely to open it. Social media has tricks just like print advertising, but first you need to understand how social media works.

Start by creating social media accounts for yourself first. To better understand social media and the return you will get on your efforts, you need to experience the platforms first hand.

  • On Twitter, check out what’s trending and jump into the conversation.
  • On LinkedIn, join a professional group to network or start a discussion.
  • On YouTube, browse channels and make a comment.
  • On Pinterest, peruse the boards, create a board and start pinning.
  • On Facebook, become a fan of a favorite organization or like a product.

It’s imperative that you experience social media firsthand so you can appreciate how different it is from traditional media and begin to understand its value.

Traditional Media ROI vs. Social Media ROI

In traditional media, communication is one way– content attracts an audience.  To confirm the audience demographics, businesses use tools like Nielsen black box, subscription data, and survey responses. Before placing advertising through traditional media, a business has a pretty good idea of who they are talking to, and the reach of their effort.  To get that audience to respond, a business can include a special offer or a phone number that can be traced back to that ad.  Figuring the ROI is a straightforward calculation.  Right?

Now, enter social media.  Social media is as incredibly complex as the millions of different personalities who log on to its networks every day. There’s not a clear direction of communication and the audience demographics are equally as fluid.  For example, while a news agency may post a piece about your product on its web site, the real story may be the debate raging in the comments section. That then spills over onto other sites. While social media metrics include clicks, comments, follows, likes, pins, posts, and tweets, those actions may or may not translate to sales.  In fact, if giving your sales an immediate boost is the only reason you’re on social media, then you’ve missed the point.

Set Social Media Goals

Once you understand how the social media platforms work, it is time to build your social media goals. You already understand that there is not a direct line to sales through social media. So what goals should you set?

  1. Build Brand Awareness
  2. Grow your Customer Database
  3. Boost Sales

Make sure you know what your business baseline is before you begin marketing on social media platforms.  When you add social media to your marketing mix, start with one network so you can better measure performance.  Don’t only tweet coupon codes.  Social media is about engaging your audience.  Share company stories, profile employees, initiate conversations, and thank customers.  Don’t forget to make it easy for potential customers to click through to your Web site. Just like that!

The Social Media ROI Formula                 

If you know your business baseline before adding social media, then any increase in brand awareness, database activity, or sales after tweeting and posting can be attributable to social media.  Is it an exact science?  As you attempt to quantify your social media activities, remember that the return on your investment may be further down the road and only evident if you commit to the social media ride.

So what’s the actual formula? Wiki How gives us a couple examples, but here is the one we use:

Calculate New Customer Value using Social Media (N): This includes the sales, conversions, business to business transactions (B2B), contact value, and placing a value on these things. Add them all to get new customer value.

Calculate User Lifetime Value: Here you include the costs that you forgo to retain a customer plus the profit that you gain as a whole, while endorsing your brand to retain a customer. (It’s like losing a little to gain more and adding the lost and the gained)

Here is a formula on how to calculate user lifetime value:

User lifetime value (U) = (Gross distribution per customer) X Σ (yearly retention rate)^i / (1+ yearly discount rate)^i – (Retention cost per customer per year) X Σ (yearly retention rate)^p / (1+ yearly discount rate)^p+0.5

i.      Where Σ runs from i= 0 to n in the first set while in the second set Σ runs from p= 0 to n-1. Here ‘n’ stands for the number of periods used in the calculation.

Calculate Impression Value: This includes the easy costs that are used to impress customers via social media to ensure a quick viewership or membership.( These are usually PPC ads)  Here is how to calculate it:

  • To calculate Impression value (I) = (Add up all impressions from Twitter, Facebook, You tube (Cumulative views), website traffic and other online sources) X (Industry based cost per thousand impressions (CPM))/100

Calculate Customer Service Value: This includes the costs saved on customer service via social media. Add all these values to get customer service value (C). Add all the investment Returns: Investment Returns (IR) = {(Customer Value/ (Time Interval in years)) X Number of new customers + I + N +’’C’’}

Calculate Social Media Expenditure: This includes the amount you spend on social media during the time of your campaign or just taking a specific campaign interval into consideration. Here are the steps on how to calculate the social media expenditure:

  • Hard costs: Calculate the hard costs which denote the work or costs associated with the actual project during the campaign or during a specific interval.
  • Soft costs: Calculate the soft costs which include the unseen work that composes the initial part of developing a project during the campaign.
  • Cost/Time spent: Unlike other investments, social media has a greater value when it comes to time spent on it. Calculate the money spent per time spent on social media during the campaign.
  • Sunk costs: Calculate the sunk costs involved during the campaign which include the costs that were required during a new addition or an internal fix during the campaign.

Social media expenditure (E) = Hard costs + Soft costs + Cost/Time spent + Sunk costs

Now, calculate your Social Media ROI using the formula: Social media ROI = (‘‘IR’’ – E ) / E.

Other Social Media Tracking Tools 

Following are a few social media marketing tools you can utilize to increase your social media ROI and build brand loyalty via an active social media presence. Here are a few new tools:


Based out of Austin, TX, TrendKite is a social media monitoring startup incubated by DreamIt Ventures. TrendKite’s founders are A.J. Bruno, Patrick Brannen, and Matt Allison. The TrendKite platform monitors everything from traditional media outlets to social media for brand mentions. The data gathered is then turned into statistical graphs for exporting to the appropriate departments. Via TrendKite, brands can send anything from a PDF to a PowerPoint presentation to their marketing department, their community engagement coordinator, or even their investors. Available via demonstration request, TrendKite’s analytical graphs are highly engaging and informative.


A startup based out of Montreal, PQ, Ejenio is currently in the invite only stage. Their social media monitoring platform will allow businesses to tackle reputation management in real time. The Ejenio platform will notify businesses instantly whenever their brand is mentioned on social media. Businesses can receive notifications either via email or via SMS messaging. With everything from actionable analytics to real time customized reporting, Ejenio is definitely a social media monitoring startup to watch.


GazeMetrix is a startup that approaches social media monitoring from a different angle. The GazeMetrix platform monitors social media for brand images. Rather than searching sites like Pinterest, Twitter, and Facebook for keywords, GazeMetrix scours the internet for a brand’s images and then reports back to the business in real time. Incubated by 500Startups, GazeMetrix has received plenty of media (Forbes, Wired, The Next Web) and investor (500 Startups’ Paul Singh and Pankaj Jain) attention. If you plan on taking social media monitoring seriously, GazeMetrix is definitely worth adding to your to-do list.

Local Report Tool

This tool is especially unique as it not only offers a local visibility report it also gives you reviews, rankings and a complete social media monitoring section. For local companies this tool gives you the best of both worlds.

For a list of other tried and true social media monitoring tools I suggest reading Small Biz Trends 20 Free Social Media Monitoring Tools

These are just a few of the tools you can use to make the most of your social media efforts. Increasing your brand’s social media ROI does not simply being more active. Rather than increasing the volume of your social media efforts, it is more important to increase the quality of your marketing efforts. By engaging with potential customers that have already shown an awareness of your brand, you greatly increase the chances of converting a social media mention into an actual sale. By combining social media monitoring with exceptional customer service, your brand will be able to turn social network mentions into real sales leads.

What’s your ROI on your social media investment? What tools do you recommend?