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to Calculate Return on Investment

      To calculate ROI, you have to recognize both costs and revenue related to your social media activities; neither is transparent, even without distinguishing marketing channels.

      Surprisingly, the key determinant in tracking cost of sales, and therefore ROI, is most likely to be your sales process, which matters more than whether you sell to other businesses (business-to-business, or B2B) or consumers (business to consumer, or B2C) or whether you offer products or services.

      

The sales cycle (the length of time from prospect identification to customer sale) affects the timeline for calculating ROI. If a B2B sale for an expensive, long-term contract or product takes two years, expecting a return on your investment within a month is pointless.

For a pure-play (e-commerce only) enterprise selling products from an online store, the ROI calculation detailed in this chapter is fairly standard. However, ROI becomes more complicated if your website generates leads that you must follow up with offline, if you must pull customers from a web presence into a brick-and-mortar storefront (that method is sometimes called bricks-and-clicks), or if you sell different products or services in different channels. Table 2-1 provides resource sites that relate to these issues and other business metrics.

TABLE 2-1 Resources for Business Metrics

Site Name	URL	What You Can Do
Hootsuite	https://blog.hootsuite.com/measure-social-media-roi-business/	Measure social media success.
Harvard Business School Toolkit	http://hbswk.hbs.edu/archive/1262.html	Use the break-even analysis tool.
	http://hbswk.hbs.edu/archive/1436.html	Calculate lifetime customer value.
National Retail Federation	https://nrf.com/resources/retail-library	Research, news, and white papers from the NRF’s digital retail community.
Olivier Blanchard Basics of Social Media ROI	www.slideshare.net/thebrandbuilder/olivier-blanchard-basics-of-social-media-roi	View an entertaining slide show introduction to ROI.
Accounting for Management	www.accountingformanagement.org/target-profit-sales-calculator	Target profit sales calculator.
HubSpot	https://blog.hubspot.com/service/what-does-cac-stand-for	Calculate customer acquisition costs.
Infineca	www.infineca.com/blog/how-to-explain-social-media-roi-with-google-analytics	Set up Google Analytics to measure social media ROI.
Search Customer Experience	https://searchcustomerexperience.techtarget.com	Find information about the customer experience.
WhatIs	http://whatis.techtarget.com	Search a dictionary and an encyclopedia of IT-related business terms.

Include the business metrics you intend to monitor in the Business Goals section of your Social Media Marketing Plan, found in Book 1, Chapter 3, and the frequency of review on your Social Media Activity Calendar discussed in Book 1, Chapter 4.

Accounting for Customers Acquired Online

      The customer acquisition cost (CAC) refers to the marketing, advertising, support, and other types of expenses required to convert a prospect into a customer. CAC usually excludes the cost of a sales force (the salary and commissions) or payments to affiliates. Some companies carefully segregate promotional expenses, such as loyalty programs, that relate to branding or customer retention. As long as you apply your definition consistently, you’re okay.

      If your goal in social media marketing is branding or improving relationships with existing customers, CAC may be a bit misleading, but it’s still worth tracking for comparison purposes.

The definition of your customers and the cost of acquiring them depend on the nature of your business. For example, if you have a purely advertising-supported, web-only business, visitors to your site may not even purchase anything. They simply show up, or perhaps they register to download some information online. Your real customers are advertisers. However, a similar business that’s not supported by advertising may need to treat those same registrants as leads who might later purchase services or pay for subscriptions.

      

The easiest way to define your customers is to figure out who pays you money.

      Comparing the costs of customer acquisition

      You may want to delineate CAC for several different revenue streams or marketing channels: consumers versus businesses; products versus services (for example, software and support contracts); online sales versus offline sales; and consumers versus advertisers. Compare each one against the average CAC for your company overall. The formula is simple:

      customer acquisition cost = marketing cost ÷ number of leads

      Be careful! This formula can be misleading if you calculate it over too short a time frame. The CAC may be too high during

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