ROI of Social Media Use Case
How to Find the ROI of Your Social Media Marketing
To accurately track the revenue you’ve earned from social media, the main thing you need to setup in Kissmetrics is your revenue data. As long as we know what revenue you’re earning, we’ll handle the rest. For more information how how to get this set up, check out our documentation on the Revenue Report.
First, click on the Revenue tab at the top of your Kissmetrics account:
Right away, you get a nice breakdown for the total revenue that you’re pulling in.
Let’s take it a step further and see which traffic sources are contributing to that revenue.Towards the bottom of the report, you’ll see a “By Segment” box. Build a segment for “Show First Ever” and select “Referrer” as the property.
You’ll see a table similar to this one:
This is a list of every traffic referrer that has contributed revenue to your business.
“First Ever”?
Remember how we picked “First Ever”? That means the table is showing us the first touch point of all our visitors. Since Kissmetrics is a customer analytics tool, we know where our customers originally came from to connect revenue back to those first touch points.
Getting the first touch point is critical to figuring out the revenue generated by social media. Marketing through social media does a great job of building awareness and expanding your reach. But it’s terrible at getting people to buy right away.
Usually, people will discover a new business via social media. Later, they’ll come back via an organic search. Then they’ll sign up for a newsletter and finally purchase something when you send them an email two weeks later. Most analytics tools will attribute that purchase to the email and would completely miss how social media brought the customer to you in the first place. Without knowing how valuable social media actually is, you might decide to stop focusing on it and drastically slow down your business by accident.
Revenue Metrics
To help you find the best sources of growth for your business, we’ve included several metrics in this table:
- Total Revenue: By default, the table is sorted by total revenue so you can see which traffic sources drive the majority of your revenue.
- Average Revenue/Person: This is the revenue you’ve earned on average from each person in that customer group.
- Lifetime Value: This is the revenue you can expect to receive in total from this group of customers. While average revenue per person shows you what you’ve already earned, lifetime value makes a prediction on what you’ll earn in the future.
- Paying Customers: The total number of customers you’ve received from this traffic source.
- Churn: This is the percentage of people that leave. The report will give you daily, weekly, or monthly churn depending on the timeline that you select at the top of the report. Churn is described in more detail here.
What to Look For
To determine whether or not social media is worth the trouble, there’s two things you want to look for.
1. Which social media sites are generating significant revenue?
- Find the social referrers that have contributed the most revenue so far. Since the table is sorted by total revenue by default, a quick scan through the results will give you all the info you need.
What if a specific social media site isn’t on this list?
- Then it hasn’t brought you any traffic that generated revenue for you. If you’ve been spending a great deal of time and money running your social media campaigns and you’re not seeing any revenue from it, you’ll want to change course.
2. Which social media sites have a relatively high lifetime value?
Total revenue doesn’t tell us the whole story, we also need to take a look at the lifetime value of our traffic sources. This tells us whether or not certain customers are valuable. If we find a traffic source with low total revenue but a high lifetime value, that means there’s plenty of potential there. Focusing on that referrer could provide a nice boost to our revenue. In other cases, a low lifetime value will confirm that a social media site just isn’t worth it. Let’s use the table above as an example. Facebook traffic contributed $689 in total revenue compared to $116 from Pinterest. But look at the lifetime value. Facebook comes in at $230 while Pinterest is only $29. Not only has Pinterest not made a difference to the bottom line, the customers from Pinterest aren’t nearly as valuable as other social media sites. There is absolutely no reason to prioritize Pinterest over Facebook for this business.
But keep an eye out for social media platforms that have a high lifetime value and a low revenue. These are your growth opportunities. If you find one that has a low total revenue AND a low lifetime value, you can safely ignore it.
How to Calculate Your ROI
Now that you have the total amount of revenue from our social media campaigns, you can get a quick sense for how valuable your social media investments are.
Use this formula: (Total Revenue from Social Media - Cost of Social Media) / (Cost of Social Media)
This will give you a ratio for your ROI. To turn it into a percentage, multiply by 100. The higher the percentage the better you’re doing. At 0%, you broke even and covered the cost for your marketing. You didn’t lose money but you didn’t earn anything either. With a 100% ROI, you doubled your money and a 200% ROI means you tripled it. If you end up with a negative number, you’re losing money.
But how do we calculate the cost of our social media? Figure out how much time your team spends on social media and use their salaries as a rough estimate. Also include any other expenses that you use regularly like design work, social media tools, etc.
Getting a positive ROI from social media doesn’t automatically mean you should continue to invest your time and resources there. You’ll have to weigh that opportunity against the other channels you could be investing in. For example, getting a 200% ROI from Facebook is great. But what if you also have a 500% ROI from AdWords? In this case, you’ll want to prioritize AdWords until you have a team that’s large enough to cover both.
Either way, you now have all the data you need to finally make your social media marketing accountable.