Any social media manager should know the meaning of ROI (Return of Investment) and its importance. ROI is a critical part of this social media’s job. It allows you to better understand the effectiveness and efficacy of your work, demonstrate value to the organization and refine your strategy over time to improve returns as you learn.
As was mentioned above, ROI is return of investment and it represents the performance measure that is used to evaluate the efficiency and profitability of an investment. Or to compare the efficiency of a number of different investments. With other words, ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.
To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.
The Return on Investment formula is as follows:
Current Value of Investment represents the proceeds obtained from the sale of the investment of interest. As ROI is measured in percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.
As long as your ROI is more than 0, your investments are making business money. There is also a possibility that you might have a negative ROI, which means that your investment was greater than the value it generated. With other words, you lost money. It is very important to understand that measuring social media ROI matters because it’s critical to building and refining your social media marketing. It is a good indicator that shows you what's working and what's not.
What qualifies as a “good” ROI will depend on factors such as the risk tolerance of the investor and the time required for the investment to generate a return. All else being equal, investors who are more risk-averse will likely accept lower ROIs in exchange for taking less risk. Likewise, investments that take longer to pay off will generally require a higher ROI in order to be attractive to investors.
Exactly how you calculate ROI depends on your organization’s objectives (brand awareness, revenue, customer satisfaction, etc.). That’s why the formula above uses value, rather than revenue or profit, as the starting point.
For example, engagement is the most common metric (36%) content executives use to measure content performance. Conversions, at 17%, are the fourth-most-common metric. Unlike conversion, engagement doesn’t have an obvious dollar value attached. But this indicator is pretty and clearly valuable since brand awareness is the top content goal. A lot of investors are looking to invest based on engagement rate.
There are many ways that you can test and see which one delivers you the best results. As you report your social media marketing ROI, make it clear what you are learning and how those lessons provide value.
For example you can use ADs formats on any other platform: Instagram, Facebook, Google etc, and see if people are interested in what you sell or provide and you get a lot of views. Do not forget about your organic content as well. You must test them too. To do this the best way is to use “Link in Bio” in an Instagram caption and see if it will decrease your engagement and reach. As we know, Link in Bio is a very good tool and useful, that’s why you should test and see if it works for you as well.
By understanding which strategies to use for each social audience, you will definitely increase ROI.
Social media is changing day by day. The content, strategies and channels that connect with your audience might not be effective tomorrow. You need to always be informed so you can update and adapt your strategy over time.
Social listening is an important way to understand what’s happening in your market. You should always know if your customer’s needs are changing, if your business has shifted priorities and resources and others. Gathering this information itself brings value to you and your organization. Using the information to inform new iterations of your social strategy is an even better way to increase ROI over time.
Don’t chase short-term ROI to the point that you lose sight of what makes your brand valuable and unique.
Don’t forget that the big picture of social media ROI includes returns beyond the marketing department. Social media can be used to improve customer service and strengthen employee relationships—both worthwhile and valuable achievements that should be included when considering ROI.
ROI is not the only metric that investors use to make their decisions as it does not account for risk or time horizon, and it requires an exact measure of all costs. Using ROI can be a good place to start in evaluating an investment, but don’t stop there.
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