How to calculate B2B social media ROI

Businesses are waking up to the potential of the social media website as a business tool. Social media websites like Facebook, Twitter, Pinterest and Google Plus have gained immensely in popularity in the recent past.

Facebook alone has more than 900 million active users. Twitter has over 500 million active users. Google Plus has around 250 million registered users. Pinterest’s user base is growing at a mind blowing rate. These websites offer a great opportunity to get traffic to your website. It definitely makes sense for businesses to invest time and money on these social media websites.

Any business investment should yield returns. Otherwise it just does not make sense. That is the reason why when ever there is a proposal for any investment in a business, the top management people come up with one question, “what’s the ROI?”

Return on investment (ROI) is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI is the most common profitability ratio.

Most of the businesses worldwide find it challenging to calculate social media ROI. Some of them just give up. Andy deBrunner, an expert in the field, says, “as long as you understand social media analytics, and have access to the right data, you can obtain true ROI.” One thing is for sure. It is definitely not rocket science. Anybody with a little knowledge of mathematics can do it.

Here is a 3-step guide offered by Andy. But before you venture into this exercise, you need to be clear about your goals, have the requisite data and develop measurement processes. Data is of paramount importance.

Determine the total lifetime value (LTV) of a sale. For instance, if you sell ebooks at $500 each and your average customer buys one widget each for five years, the lifetime value of that customer is $2,500.

Determine the social media costs involved in getting a sale. This is your actual investment. To obtain this value, divide the total amount you would have invested on social media related activities (say $50) by the number of leads those activities would have generated.

Let us assume that you have generated 25 leads. Now multiply that figure by the number of leads needed before one sale closes (say 5). The amount is (50/25)X5, which is $10. So the social media costs involved in getting a sale is $10.

Not subtract the investment from the customer LTV and divide the result by the investment. So it will be (2,500-10)/10 = 249. Multiply by hundred to get the percentage. It is very important that you are familiar with social media analytics data. Otherwise you may end up analyzing incorrect information.

You may improvise on the above-mentioned method, based on your business needs. But it is very important to begin your efforts to calculate ROI on social media. Information regarding ROI makes it possible for you have better control over your business and to take effective decisions.

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How to calculate B2B social media ROI