How to Calculate Social Media ROI

Tuesday, January 18, 2011

ROI or return on investment in social media is often turned into something much more difficult than it actually is. ROI is a number (a percentage) tied directly to the finances your efforts generate. Any non-financial benefits (stronger relationships with other vendors and/or clients, greater brand awareness, etc) that come from engaging in social media are important, but they are not ROI. An effective social media strategy will offer both a return on investment as well as other benefits.

Some of the benefits derived from social media may lead to a greater ROI later on, but they are not ROI in and of themselves. For example, most publishers these days want to review the analytics data from your blog before awarding a book deal. Increasing the number of visitors and subscribers to your blog is a benefit of social media, not a return on investment. After all, you can't pay your bills in blog readers (or Twitter followers or Facebook fans). The resulting book deal, however, does get factored into ROI because it pays you in the mother of all currencies: money.

The formula for ROI is simple:

ROI = (Profit-Investment/Investment) (100)

To calculate ROI, you'll need to know how many people hired you because of a social media channel and how much time you spend on social media as well as what that time costs you (regardless of whether or not you pay yourself, your time still costs money. Nothing is free, including social media). Here's an example that I shared at a speaking engagement last year, using round numbers:

  • Over the course of a year, you sell three services for $10,000 each because of social media.
  • You spend 5 hours a week on social media at a cost of $50 per hour. That's $250 per week or $13,000 per year. 
This means that your efforts generated $30,000 in gross revenue. Once you subtract your investment of $13,000, you're left with your profit of $17,000. So your formula would look like this:

ROI = (17,000 - 13,000/13,000) (100) or (4000/13,000) (100).

Your ROI in this case equals 30.77%. If you don't care about the percentage, all you need to do is figure out your profit (the $17,000).

I recommend calculating your social media ROI over an extended period of time, such as six months or a year, especially in the wedding industry when clients may be researching for quite a bit of time before they hire anyone. Measuring social media ROI on a month to month basis is going to be frustrating and won't give you an accurate picture of what your efforts are really doing.

It's also important to note that the best social media growth is organic and not a churn-and-burn project. You may see a few benefits right away, and more later on down the road. It may take even longer for those benefits to turn into paying opportunities that can be calculated into your ROI. If you don't write the blog, you likely won't get the book deal. If you don't put in the time having conversations with others on Twitter (as opposed to treating it as a one-way press release), you won't build the relationships that result in paying referrals or sales. Just like a good exercise program, social media will take some time of disciplined workouts before you start to see long-lasting results.

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