Calculate Social Media ROI with Ignite Social Media's Purchase Equivalency Calculator
As a social media agency, we've been thinking about social media ROI for five years. It's a complex question, made more complex by the fact that many companies cannot draw a direct line between a marketing action and a purchase. This is not unique to social media, as it's true of a lot of television advertising, public relations and many other tactics. And while we work with our clients to calculate direct ROI whenever possible, we are today releasing a new model that any brand can use to calculate their return from social media marketing.
Importantly, it is a relative measure of return. It does not purport to show a connection between social and sales. In this case, we're looking at whether the investment in social media marketing generates results that cost more or less than what it would cost to buy them through traditional online advertising.
Data You'll Need
The inputs are relatively direct. You provide:
- Facebook Organic Impressions (from Facebook Insights)
- Clicks on Facebook Links (from your tracking links)
- Twitter Impressions (using our formula)
- Clicks on Twitter Links (from your tracking links)
- Organic YouTube Views (from YouTube Analytics)
- Blog Page Views (from your analytics tool)
- Online Brand Mentions (from your monitoring tool)
How the Purchase Equivalency Calculator Works
The reason brands still invest vast sums of money in advertising is because getting positive mentions of your brand in front of those with a propensity to buy increases sales. With social media, we have channels that are largely opted-in (like Facebook fans or Twitter followers) and we can often use those to reach friends of fans. We know from lots of research that fans and friends of fans are more likely to buy, so reaching these folks is every bit as valuable as advertising. If anything, it's even more targeted.
Given that, we calculate the value of impressions the same way a media buy would, with a CPM (cost per thousand) model. For a highly targeted online media buy, you could easily spend $10 CPM, so for Facebook and Twitter impressions (highly, highly targeted) we use a $10 CPM.
What about those who do more than look? They see the post and click on it. We can already measure the value of a click, since many of us spend thousands of dollars on Google pay-per-click advertising, trying to get our prospects to click over to our site. So the value of a click can be estimated as being the same as what you would pay for it. For this model, we use $0.50 per click. For you, it may be much cheaper, or much more expensive than that, depending on what keywords you compete over.
Organic YouTube Views
If you measure the number of organic YouTube views you get (subtracting out all those you paid for), you can easily calculate what it would have cost to generate those views through promoted videos on YouTube. You can use what you pay for Promoted Videos, or use our average estimate of $0.20 per view.
Blog Pageviews and Online Brand Mentions
The trickiest elements to quantify are the values of someone visiting your branded blog or mentioning your brand online. To help with this, I built on the work done by Tourism Ireland in their Social Equivalent Ad Model paper. In that, Henry and Harte argue that these activities are deeper interactions than page views. While they can't be directly quantified, Henry and Harte argue that they are at least as valuable as click a Google CPC ad in terms of involvement with a brand. So for this model, we used the same CPC value of $0.50 per click. This is one area in particular that could use some refinement, so comments are welcome.
Amplification Model in Detail: Powerpoint
I've developed a PowerPoint that explains the Purchase Equivalency Calculator in more detail. Feel free to download it and share it, with attribution.
Calculate Your Social Media Return
I've included a spreadsheet here that you can download and change to calculate your own Amplification Model through our Purchase Equivalency Calculator. While you may not be able to use it to say that your efforts generated sales, you may be able to show that your efforts are a highly cost effective way to reach a very valuable audience.
UPDATE, 10/1/2012: While Twitter still does not share impression numbers, I recently learned from them that they do tell clients to assume a 25% view rate of tweets. I was using 12%. To be consistent with Twitter's own benchmark, I've updated the spreadsheet to reflect 25%.
Social Media ROI Defined
For those of you who think visually (or like to print things out), we've created this infographic explaining the Purchase Equivalency Calculator steps in sequence.
Add This Infographic to Your Site
This model can and will evolve. In part through your comments below. What do you think of the model? Strong points? Weak points? What would you change? Let me know in the comments.
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