ROI on Social Media

Social media was hailed as a game-changer for business.

The ability to start a conversation with your customers and your target market was promoted as a new nirvana.

The further ability to use social media for highly targeted advertising saw a plethora of social media consultants promoting a suite of services.

Now we are down the highway, I thought it might be useful to make a roadhouse stop and reflect on the ROI (return on investment) on social media activity.

Have a think about your own ROI on social media.

ROI on Social Media (Paid)

Paid Social Media is where you have paid through Google AdWords, boosts or other paid content to have your business promoted/shared on social media platforms.

For example, a wholesaler or retailer often pays a monthly fee ($1,000-$5,000) for a social media consultant to optimize their business presence including advertising fees paid. The monthly fee is a combination of the consultant’s fees and advertising costs.

While many social media consultants promote that you can track your ROI through identifying sales against spend, I have found this rarely to be the case.

If you could, it would be a licence to print money.

If you knew that for every $1 spent on social media advertising generated $3 revenue at say a 50% gross margin, your gross margin would be $1.50 ($3 revenue @ 50% margin) less your $1 social media advertising leaving you a net return of $0.50. Your ROI would be 50% ($0.50 net return /$1.00 social media advertising investment).

In the event that demand was infinite, you could increase your social media advertising investment aggressively knowing you would earn a 50% ROI.

Unfortunately, the ability to calculate an accurate ROI on direct social media advertising is difficult. The Google algorithms are constantly changing, new competitors enter the online market daily and market demand is finite.

While difficult to calculate, some business owners have committed to paid social media advertising because they have been able to estimate that it has generated higher sales margin than the social media advertising expense.

If you are comfortable that paid advertising nets you profit after the social media spend, it makes sense to continue despite not being able to calculate an exact ROI.

ROI on Social Media (Free)

The majority of business owners have utilized free social media to broadcast their content.

Let’s pause for a moment to consider whether social media is free.

The perceive need to create content for sharing on social media has required capacity to be allocated to generating content. Whether this is costed on the basis of a business owner (or employees) time in creating content or outsourced to an agency for money, it is not free.

The business has either paid for content creation in time or money.

Once again, my experience has been that it is difficult to really understand whether your business has increased revenue through broadcasting on social media.

Of course, there are examples of specific niche businesses that have done well on Facebook, LinkedIn or Instagram but I’m talking across the board.

It is worth reflecting whether the cost of your time and money in social media broadcasting has a positive ROI.

Does it increase your existing customer spend, average transaction value, number of transactions or lifetime value of a customer?

Does it attract new customers that you would not have won but for attracting them through social media?

And finally, before I hear people bemoaning the fact that I have overlooked the branding benefits that social media brings, my observation would be that most SME businesses are valued on an earnings-multiple with little goodwill (branding) applied.

Opportunity Costs

The hidden costs of constantly accessing social media is time and wellbeing.

The time spent on social media is displacing time that you would spend on other activities. It’s important to recognize this. Psychologists have spoken of the impact of this in people connecting in-person and the lost art of conversation.

Psychologists have also identified that wellbeing is impacted by responses towards the user on social media. Think about the relationship you have with social media and whether it adds happiness or heartache to your mental and emotional wellbeing.

No judgement again. Just a valid observation.

Time is finite. The activity on social media has the opportunity cost of displacing an alternative activity.

To Play or not to Play Dilemma

To play or not play?

If you are a business that enjoys additional revenue and profit from paid social media advertising, I encourage you to continue making hay while the sun shines!

If you are a business that uses paid social media advertising and you are unsure whether you have a positive ROI on social media time and costs, I recommend you stop and make an objective assessment.

For many businesses, the decision surrounds time (owners/employees) and money (outsourced bloggers/consultants) spent on creating content for free social media platforms.

It’s not whether you do or don’t play in the social media space in business, it’s honestly evaluating the effort, time and cost of producing content against the results and outcomes.

If you do choose to play, create great content that you are proud of.

I would rather clients be invisible on social media than broadcast inferior content, waste time, overspend or suffer anxiety.

In my own business, as an author and blogger I have made a commitment to create content fortnightly for my clients and network. It takes me time to write but I enjoy writing and feel that I want to contribute ideas to small and medium business owners that helps their success.

So, if you do decide to play, periodically ask what your ROI on social media is.

And if you decide not to play, that’s okay too. But make sure you allocate your extra hours and savings on meaningful activity that creates winning results and outcomes for you. 

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