3 Step Guide: How to Calculate the “Real” ROI of Social Media

Photo credit to Intersection Consulting via Flickr

You “own” your company’s social media platforms and always struggle to get buy-in on investing more dollars or getting additional headcount because these channels don’t show a demonstrable contribution to conversions. Sounds familiar? As marketers we know instinctively that these social channels introduce new audiences to our franchise but we struggle to demonstrate social ROI for two reasons -

  1. Marketing departments are often structured around rigid definitions of acquisition and loyalty initiatives. Social straddles both worlds. If social platforms are managed by the Loyalty team, proving that these platforms draw new customers is not part of the group’s goals. If managed by the Acquisition team, they don’t always focus on proving ROI and instead focus on soft goals like “gazillion Faceboook friends” or “bajillion Twitter followers” rather than their behavior on site. Either way you look at it, we’re not giving this important channel it’s fair due.
  2. We’re so conditioned by a straight line “X channel leads to Y on-site conversions” computations that we’re seemingly incapable of non-linear thinking.

Instead, throw out the old rules and try this foolproof way of proving social’s worth in quantifiable terms.

Step 1

Make sure you know how to use your company’s web analytics platform. A lot of marketers do themselves a disservice by not understanding their company’s web analytics platform – there is power in numbers. Pull a report on referral sources i.e. what channels (organic search, PPC, email, Facebook etc.) drive traffic to your website. Correlate this report with conversion data.

This is great baseline data but the problem with this report is that it usually attributes conversions by last click e.g. if Parneet first comes to seedwalker.com from Facebook, then a week later clicks through from Seedwalker’s weekly newsletter and buys a product, email is credited with that conversion in a last-click attribution model. But Facebook is responsible for acquiring Parneet as a new customer to begin with – how do we measure this value?

Step 2

Figure 1 (Source: Adobe Digital Index Social Report 2012)

A report by Adobe Digital Index demonstrates that last-click attribution undervalues Average Visitor Value (revenue generated by visitor) coming from social channels by as much as 88% (retail) to 94% (travel). Specifically, figure 1 shows that the average value of social visitors for retail sites goes up from $0.60 to $1.13 when first-click attribution is used. Now consider that Facebook, Pinterest and Twitter are often among the top 10 traffic generators for sites that are focusing on them – that’s a lot of incremental revenue being sacrificed by companies not investing adequate $ and headcount on social.

Figure 2 shows the “real” value of some of the social channels. Notice that despite all the intense interest in Pinterest, Facebook still reigns supreme when it comes to capturing qualified visitors that convert, as are other more mature platforms like Twitter and YouTube. I was especially interested to see the value generated by Blogger visitors who are more valuable than both WordPress and Tumblr visitors. Interesting!

This data seems to indicate that first-click attribution models are a great way to demonstrate social ROI.

Figure 2 (Source: Adobe Digital Index Social Report 2012)

Step 3

While first-click attribution is all well and good, the truth is that companies have been using last-click attribution for too long to change it outright. If your company can’t use a hybrid attribution model, try using a weighted average while allocating budget to various marketing channels so that your goals reflect the importance that social plays in both acquisition and retention. And stop leaving money on the table.

Stay tuned for a follow-up post on the value of a “like” on Facebook.

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