Calculating your social media ROI can be a complicated process. But what's even more challenging is determining how good your social media ROI is relative to your business.
As companies increase spending on social media advertising, marketers face growing pressure to prove the return of that investment (ROI). In practice, this means looker deeper into your income and performance reports to determine social media ROI.
Simply put, establishing social media ROI consists of calculating the amount of profit or advertising objectives completions you generated from your social media marketing investments. To do that, you can follow this simple formula:
Profit / Investment x 100 = social media ROI %
Profit – the money you’ve earned from your social media marketing efforts
Investment – the total cost of your social media marketing efforts
Of course, using this formula will only allow you to figure out your social media ROI on a basic level. To get more accurate results, you should consider factors such as your social media attribution model, lifetime customer value, and campaign outcomes in relation to the marketing funnel.
But even after you include all these variables in your calculations and pinpoint your return, it’s difficult to you know for certain that your social media ROI is good. Are your numbers really representative of your success? Or, perhaps, does your ROI fall below the industry’s average?
Here’s how you can get answers to these questions:
The first step to understanding how good your social media ROI is should be measuring how well your revenue is helping you meet your business objectives. You can do that using reverse engineering – since you already know your goals, you’re able to estimate what ROI will enable you to achieve them.
Start off by establishing the value of your conversions by looking at your production and shipping costs, and especially the lifetime value of a customer.
Next, you need to find out whether your social media ROI is sufficient in your market. Keep in mind that an ROI that’s enough to sustain your business might in fact be too little to help you grow and outperform the competition.
For that reason, you need to evaluate your social media ROI in the context of the market.
Comparing your social media investments to the market is essential in establishing the real worth of your ROI. That’s because it gives you a clear overview of the budget your competitors are putting behind their Facebook ads and the value they’re generating with their investments.
At this point, you’re probably wondering how exactly you’re supposed to uncover the competition’s ad spending and performance. After all, it’s not like businesses advertising on social media are eagerly sharing this type of data.
Luckily, there is a way to unwrap the Facebook spending in your country, region, and industry, learn how much value is generated with those investments, and create accurate criteria to compare your own revenue against.
Screenshot taken in Socialbakers Ads Benchmarks
By having access to day-by-day data on how the market is evolving, you’ll be able to clearly see if your social spending is keeping your business competitive.
To find out how you stack up, first look into metrics such as Cost per Click (CPC), Cost per Action (CPA), Cost per Mille (CPM), and Cost per Page Like. If your spend is much higher than the average, you might want to reconsider your marketing strategy (for example by tweaking targeting options, improving your ads’ quality, or adjusting your bidding) to achieve better social media ROI.
Then, delve into the market’s average volume of engagement. Remember that ROI doesn’t always have to be a monetary value and can also be the number of times your advertising objectives were completed. Compare your results against the country, region, and industry to assess if you’re getting enough return off of your social media investments.
The analysis of these metrics will demonstrate how good your social media ROI is. It will also give you a detailed understanding of the areas of your social media strategy that could be improved to generate more social media ROI.
But there’s one more crucial factor that can heavily impact your social media ROI – Facebook relevance score.
The majority of businesses will fall between the range of 4 to 6 when it comes to the relevance score. This result, though, is not something you should settle for. If you want to grow and generate better revenue, you need to aim for a high relevance score, which is easier to do if you know how the key Facebook ad spending and performance benchmarks are changing day to day.
Facebook advertising landscape never stays the same: there are News Feed algorithm changes, holiday campaigns or new brands entering the market – all of which can impact your revenue. Keeping an eye on how your ad benchmarks change on a daily basis is pivotal to measuring how good your social media ROI is.
When it comes to defining a good social media ROI, there’s no universal number that’s an indicator of success for any company advertising on social media. You should instead determine what’s a good revenue for your own business by benchmarking your spend and results against the market.