What’s the ROI on Social Advertising?

How can you tell if the money you are spending on social advertising is actually paying off? It’s a question that independent insurance agents ask themselves–as do marketing professionals who calculate ROI for a living. In a world where we are beginning to value likes and comments just as much clicks and conversions, how do you accurately evaluate the performance of your social advertising? And then how do you know if you’re getting the best bang for your buck?

First, we must understand that there are two types of ROI: traditional ROI and Social ROI. Return on investment at the most basic level refers to the gain from an investment relative to the cost of that investment. In the world of digital marketing, Traditional ROI refers to the financial gain relative to the financial cost, whereas Social ROI refers the social gain relative to the financial cost.

When analyzing the results from your social advertising, it is important to consider both Traditional and Social ROI. The combination of the two give a holistic picture of how your social advertising is performing that neither alone can give you.

So how exactly do you calculate Traditional and Social ROI? Most social media sites provide advertisers with data on the performance of their advertisements. For Facebook, you simply go to the Insights tab on your businesses page. On LinkedIn, you must log into your Campaign Manager account to access analytics. For Twitter, click on the drop down menu and select analytics. Once you have accessed the data, you can begin your calculations.

Calculating the Traditional ROI

Let’s take a look at an example of a traditional ROI calculation. Say a retailer spends $20 dollars on a Facebook advertisement. That advertisement results in 8 clicks and 5 conversions to a sale of a $40 t-shirt. ROI on that advertisement looks likes this: 5 t-shirts x $40= $200, $200-$20/$200 = 0.90 or 90% ROI. Check out the formula below to see how the math works.

While it would be really nice to be able to calculate ROI on insurance social advertising in such a simple manner, it isn’t quite that simple. How often do you see a single advertisement, click on that ad, and buy a product right on the spot? Almost never. The process is more involved. Consumers often have to see an advertisement more than once or read a review before they click.

Instead of using the results from a single ad as the measure of your success, use them as a way to determine what type of ads work. Advertisements with the best results should be repeated; ads that perform poorly should be removed from the rotation. A better way to determine the success of your social advertising through traditional ROI would be to take the above formula and substitute your cumulative spend and cumulative profit from all social media advertisements.

Calculating the Social ROI

Social ROI is calculated in a very similar manner. Let’s look at an example where a retailer spends $10 on a t-shirt ad. This time, take a look at the Facebook social metrics: likes, comments, shares, etc. that resulted from your ad. In this instance, you set the objective of the ad to increase likes on your page and got 170 new likes. The math is as follows; 170/$10 = 17 likes for each dollar you spent. Was it worth it?

That depends. How much do you value a like on your page? Some companies have been able to place a dollar amount on a like by using complicated calculations based off of the percentage of their followers who generally purchase from them. With that information, they can determine that an X amount of increase in followers means an X amount of increase in their business. Check out this calculator that can help you determine the value of a like for your business.

Is Social Advertising Worth It?

At the end of the day, you must ask yourself, “How much am I willing to spend to acquire a new customer?” Dive into the data to figure out the lifetime value of one of your customers. Spending $20 a month to acquire a customer that has a $2,000 lifetime value is home run–while spending $20 a month on a gaining a customer that only has a lifetime value of $40 doesn’t make any sense.  For insurance agents, a basic auto insurance client can have a lifetime value worth thousands of dollars or more. When it costs, on average, less than $10 to run a single Facebook ad, it makes a lot of sense to be running advertisements on Facebook!

Don’t know where to get started with social advertising? Need a place to start? We’ve got you covered: whatever InsuranceSocial.Media subscription plan you choose, you can enjoy unlimited use of our Target Marketing tool. Three clicks, and this tool will have your Facebook ad up and running to exactly the right audience. Questions? We’re here to help!

–By Matt Lavery

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