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Mar 13, 2012

B2B ROI in Three Easy Steps

CATEGORY: SOCIAL MEDIA

Some people seem to think that calculating the return on investment (ROI) of social media efforts is impossible, but for many B2B companies, calculating ROI is dead simple (notice that I didn’t say easy). This is something that I’ve written about on my personal blog in the past, but I wanted to share it with a larger audience here too. I’ll admit that this is a bare-bones simplification of the process and, in some cases, finding ROI can be very difficult, if not impossible. Also, for some businesses, fan interaction and engagement may even be as far as you really want to go with measurement. But if you have a B2B business, lead generation is probably one of your primary goals for social media and as long as you understand social media analytics and have access to the right data, you can obtain true ROI. Remember, before you begin, define your goals, develop measurement processes and stay focused to be sure you have the data you need. Once you have the data, the rest is a piece of cake. Without further ado, here’s how to measure ROI:

  1. Determine the total lifetime value of a sale. For example, if you sell widgets at $1,000 each and your average customer buys one widget each year for 10 years, the lifetime value of that customer is $10,000.
  2. Determine the social media costs to acquire a sale. Figure out your cost per lead by simply dividing the amount of money you’ve spent on social media activities (we’ll say $100) by the number of leads those activities have generated (let’s go with 10). Then multiply that by the number of leads needed before a sale closes (10 sounds good for this). In this example, it would cost $100 to close a sale. Here’s the calculation ($100/10)*10 = $100. This is your per-sale “investment".
  3. Subtract the investment from the total lifetime value (this is essentially a profit calculation), then divide that by the investment. So in this case, the company made $9,000 off of a $100 investment. This is the equation ($10,000-100)/100 = 99 which you multiply by 100 to get 9,900% ROI.

That’s it. That’s all it is. You’re done. Congratulations! Oh, and if you’re the “extra credit” type, you can go for bonus points and add in the cost to retain your customer to your “investment” number for a more accurate picture of ROI, but those costs are not necessarily associated with the social media marketing investment, so they can be misleading if you’re not careful.

Make sure you’re familiar with social media analytics just to be sure you’re tracking the right information upfront. A moderate investment in a good marketing automation solution is almost a must-have, too. Once you have everything set up properly and are regularly monitoring your efforts, you’ll be able produce your ROI for your CFO at a moment’s notice.

If you have any questions, feel free to leave them in the comments section.

Comments
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  • March 26, 2012 (11:37 AM EST)
    Danielle Hohmeier writes:
    This is great. Determining the value of social media is just like determining the value of print ads, booths and sponsorships at trade shows, a brochure, a website, etc. People usually dismiss social media as either NOT being able to measure ROI or are just tracking meaningless stats like followers, likes, etc, without ever tying it back to real goals or real results.

    Great post.

    Danielle Hohmeier
    Online Marketing Manager @ Atomicdust
  • March 26, 2012 (12:22 PM EST)
    Andy DeBrunner writes:
    Thanks for your comment, Danielle. I'm glad you liked the post!
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