What is ROI?
Return on Investment. You’ve probably heard the term many times in business. Simply put, it’s the profitability of an investment compared to the original cost. When it comes to advertising, it’s important to evaluate ROI so that you can invest more of your budget into the channels that are reaping the highest return.
We know that social media may seem overwhelming or unnecessary to some small business owners. However, we can promise you that it is neither! Social media needs to be a part of your marketing strategy because it is both an inexpensive and effective way to attract paying customers.
Often, the only numbers attributed to social media success are vanity metrics – followers, likes, comments, and shares. While these may be essential for a healthy social media presence, we know that they don’t necessarily translate to the bottom line. The most valuable metrics (click-through rates, conversions, bounce rates, session lengths, traffic sources, etc.) can be obtained through backend applications, like Facebook Pixel and Google Analytics. In addition, when you combine a few of these metrics with some commonly used KPI’s, you can calculate a simple social media advertising ROI.
To do so, you need to answer the following questions:
- How much money are you spending on your ad?
- How many people fill out and submit the form on your website?
- What is the average value of a lead for your business?
- How many people are sent to your website from your ad?
- On average, how many leads convert to a sale?
- How many of those people reach a form on your website from your ad?
To illustrate, let’s walk through a real-life example of ours. Recently, we worked with a local flooring company to run a Facebook advertisement promoting their hardwood refinishing special.
Step 1: Determine your budget
We created a Facebook advertisement for the flooring company with some before-and-after images of recent refinishing projects and included a short description of the special they were running. We built a lookalike audience based off of their website visitors and email list to strategically target people who are more likely to be interested in their product. Running this ad for a month equated to a lifetime value of $250 which is included in the $1500/month social media plan they’re on.
Step 2: Analyze the results of the ad
The goal of this ad was to have as many people as possible, within our client’s service area, click through to the website and fill out the contact form for an estimate on their floor refinishing project. At the completion of the ad, we had 17,225 impressions with 481 clicks through to the website.
Next, we dove into our Google Analytics account to identify how many people filled out our contact form for an estimate. Under “acquisition”, filter by your goal completions, and then look into the source and find Facebook. Of the 481 people that clicked through from the ad, 23 of them completed the contact form. That’s a 4.8% conversion rate.
Step 3: Find out the value of a lead
Our client estimated that the average value of one floor refinishing lead is $2000.
Step 4: Identify how many leads turn to sales
Our client estimated that 3 out of 10 leads will convert to a paying customer. Translating to an estimated 30% close rate.
Step 5: Put it all together
Information we have:
- $1500 total monthly investment including Ad and Social Media Management cost
- 17,225 impressions
- 481 clicked through from the ad to the website
- 23 completed the contact form and qualified as a lead
- Average lead is worth $2000
- An average close rate of 30%
With this information, we are able to do some math with the numbers that do actually contribute to your bottom line.
23 leads x 30% close rate = 6.9 sales but we’ll round to 7
7 sales x $2000 average sale value = $14,000
Now, for the ROI. (Drumroll please!)
With our client’s initial investment of $1500 (total monthly investment including Ad and Social Media Management cost) and their potential return of $14,000, their return on investment calculates to a whopping 834%.
Want us to help your business? Contact us today to chat about our social media packages and how we can help you increase your social media ROI! Our office is conveniently located in Milwaukee, near Wauwatosa, just a few blocks south of Mount Mary College.