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Why Estimate a Return?

You use the return and the ROI to compare the efficiency of marketing campaigns; for an in-house team, you can use these numbers to negotiate budgets with your management; for agencies, you can use estimated numbers to land prospective clients and to retain current clients. The numbers are used in conjunction with social and web metrics to analyze and optimize current and future campaigns.

Last but not the least, a primary reason for using the return and the ROI is social media financial accountability. As social media initiatives become mainstream, executives are holding them to the same accountability as other business initiatives, demanding financial returns and ROI on social media investments.

How Should I Estimate My Return?

So, how do you estimate the social media return?

To estimate the social media return and ROI, you need to start with a 3-step process:
1.    Define your social media goal.
2.    Based on the goal, define your social media return.
3.    Finally, define how you will tie hard dollars to the social media return.

Social Media ROI on Sales

In this case, we are tasked with estimating the ROI on sales. The tricky part is to attribute sales to social media.

Using the 3-step process, we first define our social media goal as “we want to increase sales.” Second, based on the goal, we’ll define the return as the value of sales that can safely be attributed to the social media campaign. Third, the hard-dollar value is the amount of sales dollars.

The second step in the 3-step process—attribute sales to a social media campaign—is hard to do. How can you safely attribute sales to a social media campaign? Getting accurate numbers is tough, but we can estimate sales by employing a few different methods.

The first method is to look at is last-touch sales, which means that by using our web analytics program, we can follow a user upstream from the online check-out counter to where the user entered the stream. If the user entered the stream from one of our social media touch points, we can attribute that user’s sales to our social media campaign.

A second method is to provide our users with social media campaign–only coupon codes, which means that if a user checks out with this coupon code, we can attribute that sale to our social media campaign.

A third method, which is a bit more involved, is to forecast the value of our sales without a social media campaign. During the campaign, we compare actual sales with forecasted sales and assuming that the actual sales are higher than the forecasted sales, we can use the difference as the value of our social media return.

Each method is good; however, a combination of methods could give us a more accurate picture.

Now, the last step in the process is to declare that the amount of sales that you attribute to your social media campaign is in fact your social media return. Based on the cost of the campaign, you can quickly calculate your social media ROI using the standard financial ROI formula.

Social media ROI = (return – investment) / investment %.

For example, during last month, we estimated that we could attribute $2,500 in sales to our social media campaign. This is our social media return. Let’s assume that our investment in our social media campaign was $1,000. Using our ROI formula:
Social media ROI = ($2,500 – $1,000) / $1,000 % = 150%

This means that for the last month, we estimate that our social media ROI is 150%.

To read the full article visit: www.socialmediaexaminer.com

Author: Dag Holmboe

Source: Social Media Examiner

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