Thursday, July 22, 2010

Social Media: Determining Effectiveness as a Marketing Strategy

It is easy to get excited about Facebook, LinkedIn and Twitter and spend lots of time marketing your business online. As a business owner, if you are using these media to generate business, you need to treat them like any marketing strategy and determine their effectiveness. A strategy's effectiveness can be gauged via the return on investment (ROI). The ROI is a calculation based on how much you get back versus what you invested (time or money).

The higher the ROI, the more ‘bang for the buck.’ By focusing on higher ROI strategies, you can eliminate the lower performing strategies and increase the revenue you are earning, in effect giving yourself a raise. This will allow you to get more done for less effort and money, optimizing your marketing and making your conversion of contacts to clients more efficient. Measuring results allows to you to monitor outcomes.

Suggested metrics for social media:

Reach: Total number of fans, friends, connections, followers, etc

Growth: The number of new contacts over a period of time.

Engagement: Level of engagement and number of conversations with potential and current customers and fans. *Insights, Facebook'a built-in analytics, lets you track valuable metrics such as page views, wall posts, discussion threads, and photo views. Check out the Insights for your page by visiting your page and clicking on View Insights.

Impact on Sales Funnel: The number of visitors from Facebook, LinkedIn, and Twitter that convert into leads and customers. Use a marketing analytics program to track the impact on your sales funnel. Google Analytics is a FREE resource that can help track your conversions through your website.

There are a few marketing plan out there can guide you through best practices in using social media for generating business. In The Mining Social Media Gold Marketing Course, there is a 6 week marketing plan that shows you how to convert contacts to clients. Based on their Facebook marketing plan, here is an example of how to calculate your ROI.

*The numbers below are JUST an example. They do not represent expected results.
Reach at Beginning: 50 contacts, no groups

Growth: 200 new personal contacts, started own business page with 200 fans.

Engagement: 30 strategic posts on business page, $10 per day of ads for 30 days.

Impact on Sales Funnel: 15 requests for more information, 4 contracts, $2000 of new revenue.

Cost (Time): Approximately 30 minutes per day times 30 days of effort = 900 minutes.

Cost ($): $300.

Revenue per time: $2000 earned / 900 minutes = $2.22 per minute = $133 per hour return on time investment (ROI).

Revenue per $: $2000 earned / $300 spent = 660% Return on money investment (ROI).

How to calculate the ROI:
  1. Decide what you will measure (number of contacts, number of requests, number of new contacts, number of new clients within x days of starting strategy).
  2. Decide over what period you will measure your results (30-60-90 days or more).
  3. Measure your metric before you start your campaign.
  4. Start your campaign.
  5. At the end of your campaign measure your results.
  6. Divide the revenue (or projected revenue) by the time cost to determine your return on time investment.
  7. Divide the revenue (or projected revenue) by the cost to determine your return on money investment.
  8. Decide if the ROI (time) and ROI (money) is acceptable compared to other marketing strategies.
Remember, if using Facebook, Twitter and LinkedIn for business, monitor and track your ROI. If social media is not providing an acceptable ROI, look for other methods that may suit your business better. Social media is great, but may not be the most effective strategy for your business.

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