How Do Small Businesses Track the ROI on Social Media?

Q: How does a small business assess & track the role social media does & should play in their marketing plan, from both a time & financial standpoint? I’ve found it difficult to track the success (or failure) and find most small biz are throwing darts in the dark.

A: Good question. Short question. Long answer. It’s true, most small businesses I talk to don’t really know what to look for when it comes to tracking the ROI of social. In my opinion small businesses should be where their customers are. With billions of people using social media these days – odds are your customers are there. I believe businesses should use social media to do more than just sell. Social media should help brands serve and connect with their customers and potential customers. Brands can use social media platforms like Facebook as a customer service tool, a sales tool, a public outreach tool, to help generate good public relations and boost brand awareness. Some platforms are more conducive to sales than others for example – Facebook allows for an online store whereas there’s no online store option with Snapchat. Recently Pinterest enabled a shopping cart option so that channel could become one to watch for some small businesses. Instagram is tricky to try and use for a sales funnel. It can be done but it’s not as easy but that’s another blog post for a different day. I digress, let’s get back to ROI.

While there are more sophisticated ways to dive deep into ROI, Google analytics is an easy place to start. Let’s say the ACME Widget Company had 60,000 orders placed on their website. They know from looking at their Google analytics they had 219,000 unique visitors to their website. We need a place to start tracking ROI so we’re going to have to do some estimation here. Take the # of orders placed on website and divide the # of orders by the # of website visitors.

60,000 orders divided by 219,000 visitors = a 27% conversion rate. Of all the people that visited ACME Widget Company’s website 27% of them placed an order.

But how does this apply to tracking social media effectiveness? I’ll get to that but first we need more data. We need to call the sales department at ACME Widget Company to figure out the average revenue per order. Let’s say the sales manager tells us the average revenue per order was $124. Now we need to look at our Google analytics to see how many unique visitors to our website came there as a direct result of our social media efforts.

Next, we look at Google analytics and see ACME Widget Company had 5,000 people visit their website from Facebook. We know on average we have a 27% conversion rate and our average order is $124.

5000 people divided by 27% = 185 orders x $124 average revenue = $22,940 estimated revenue from Facebook.

Now, we call the marketing manager at ACME Widget and ask what was spent on Facebook advertising. The marketing manager tells us they spent $8,000 on Facebook ads and sponsored posts. We take the amount of revenue generated by the amount spent.

$22,940 divided by $8,000 = 2.86 which in ROI world means for every $1.00 spent on Facebook $2.86 was generated. It sounds more impressive when you put a % on the ROI. That’s a whopping 287% return rate! (You can always double check your math by taking the amount spent and multiplying it by the ROI percentage. $8000 spent multiplied by 287% = $22,960 which ok we’re rounding up but it’s pretty darn close.)

Now some small businesses may want to take the cost of goods into consideration which makes your ROI #’s look not so pretty. Here’s how this might play out. We now call the CFO at ACME and ask for the profit margin. If the average order was $124 what was the hard cost of goods involved?

We find out on average for every $124 order ACME keeps $81.00 in profit. Let’s run our #’s again.

185 orders x $81.00 = $14,985 estimated revenue divided by the $8000 spent and now we have a different ROI. Now our ROI is 187% which looks good at first but it isn’t really because for every $1.00 spent Facebook only brought back $1.87. No-one is going to get excited about that. It didn’t really break even now that we have to take the hard cost of goods into consideration. And we didn’t factor in the time it took for someone to put the Facebook ads together or whether or not a graphic designer or copywriter was hired to produce the Facebook ads. It really depends on how much you want to get in the weeds with tracking ROI. Does this mean ACME shouldn’t advertise on Facebook? Nope. Remember we’re judging this all on the conversion rate from the website because we needed a place to start. Some small businesses take orders over the phone – maybe some of those orders came from Facebook. We would need to examine all sources of business. IF you do have a small business that’s selling over the phone please get your order takers excited about tracking. It only takes a few seconds to ask someone how they heard about you. Tracking orders is important for ROI.

So…what should ACME do? If I were hired to be their marketing consultant I would do a couple of things:

1. Understand who their target audience is and then look at the landing page the Facebook ads are sending people to. Is the landing page optimized? Does it use photos or video and copy that speaks to their target audience?

2. Look at the headlines, images and copy used in the actual Facebook ads. Is that optimized?

3. Look at the targeting used for the Facebook ads. I could talk for hours about some of the exciting things you can do with targeting in Facebook! There are SO many options!

4. Evaluate the check-out process. There’s something called cart abandonment which means a website visitor may put something in their shopping cart but not actually click the PURCHASE NOW button. There may be something clunky in the check-out process that could be streamlined and thus increase your conversion rate.

5. Check to see that the website that is taking orders is a secure website. Does it have the https: in the URL indicating to customers there’s a level of protection on the site.

Whew. Long blog post. Does this help give you an idea of a starting place for tracking ROI on social? Leave a comment on the blog, send an email or reach out via social if you have any additional questions you’d like to see covered in a future article. Meanwhile if you want to take a deeper dive into tracking social media effectiveness I highly recommend tuning into the Social Media Examiner content. SME has a live event, free podcasts on iTunes and a treasure trove of content on their blog. I should also point out that there are other tools besides Google analytics for measuring social. Some free tools and paid tools. SME wrote a helpful article earlier this year on 5 tools to measure effectiveness.

I hope this was useful. Thanks for reading.