What is ROI and what does it stand for?
ROI stands for “return on investment,” and it’s a financial metric to calculate the amount of return on your investment; it essentially measures whether your investment is profitable and efficient.
If your ROI is more than 0%, your investments are profitable and making your business money, but if it’s below 0%, then you should consider finding new strategies that provide more value than what they cost.
What is social media ROI?
Social media ROI (return on investment) is what you get back in terms of revenue from all the time, effort, expenses, and resources you commit to your social media marketing campaigns.
In social media marketing, ROI tends to be an elusive metric since revenue can be difficult to measure directly from social. Often times, ROI includes a return in clicks, engagement, or new followers based on the time and resources devoted to a social network.
Ex. It costs $5,000 a year to maintain your website (domain, hosting, copywriting, design fees, etc.), but is generates $20,000/year in revenue. Based on this example your ROI would be 400% ($20,000 divided by $5000).
Why should you track social media ROI?
Tracking social media ROI is essential to help you measure the effectiveness of your social media campaigns and strategy. It helps you answer questions like:
- Are our social media efforts generating revenue?
- Which social media campaign was more efficient?
- Which marketing channels yield the highest returns?
- How can we optimize our social media strategy to achieve better results?
By answering these questions, you’ll identify which strategies and campaigns are working for you (and which ones aren’t), so that you can allocate your resources more effectively moving forward and yield better business results.
What’s an example of social media ROI?
Let's say a jewelry brand runs an Instagram sponsored campaign to promote the launch of a new pair of earrings. They spend $2,000, which resulted in 20 new earring orders, with an average order value of $120. Overall, the campaign brought in $2,400 in revenue.
To calculate the social media ROI, we use the following formula: (Return - Investment) / Investment x 100
Using this formula, we can calculate the ROI for this social campaign as follows:
ROI = ($2,400 - $2,000) / $2,000 x 100 = 20%
Based on this calculation, the social media ROI for this Instagram campaign is 20%, which means that the revenue generated from the campaign is 20% higher than the amount invested. Ultimately, the jewelry brand made a smart and profitable investment that yielded a positive return on investment.
How do I calculate ROI?
ROI can be calculated with this formula: ROI = (return – investment) / investment
This straightforward formula has just two parts: return and investment. And the result is expressed as a percentage or a ratio. Here’s how to figure out each of the two values on social media:
- Return: This is one of the trickier elements of social media ROI because it can mean so many different things to so many different marketers, but mainly you should just pick a goal (such as new followers, orders, link clicks, etc), stick to it, and assign a monetary value to it.
- Investment: While it’s true that using Instagram, Twitter, and Facebook is free, but your time, your social media tools, and your ad spend are worth real dollars.
What does 30% ROI mean?
A 30% ROI means that the revenue generated from a specific social media campaign or activity is 30% higher than the amount you invested. In other words, for every $1 you invested, you generates $0.30 in profit.
Ultimately, that means you made a smart and profitable investment that yielded a positive return on investment.
What is a good ROI?
A good ROI is any percentage or ratio result that is above 0. If your ROI is more than 0%, your investments are profitable and making your business money. However, if your ROI is below 0%, then that means that you are spending more money than you are making and should consider finding new strategies that provide more value.
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