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Quantifying the ROI of Social Media Product Promotion

  |  October 16, 2012   |  Comments

How can you prove the success across your product engagement strategy?

As brands' social commerce efforts have evolved over the course of 2012, the focus has shifted largely from pure social transactions toward social product discovery and engagement. Approaching social engagement with a product-centric lens, with a concerted focus on product content and product experiences to address social customers "higher in the funnel" has proven exceedingly successful - much more so than asking someone to pull out their credit card in Facebook.

While transactions are inherently measurable, how can you prove the success across your product engagement strategy? After all, even if commerce metrics don't capture the full value of a social marketing program, you can easily project ROI when someone says: "We sold $200,000 through the social campaign!"

But how do you calculate the ROI of social product engagement with metrics like these?

Example: "A Social Product Launch Experience"

  • 2,500,000 social customers saw a post announcing a new product
  • 50,000 of them clicked the post to check it out
  • 25,000 of those watched the video or explored the "product story" page
  • 5,000 liked, commented on, or shared the product
  • 5,000 created a story via an Open Graph action (want, love, own)
  • 5,000 "allowed" the app in order to share content
  • 1,000 added it to a "basket" and clicked to the e-store to check out

Quantifying the value of social product engagement metrics like these requires a different approach.

Assigning Value to the Social Product Promotion "Funnel"

In order to consistently ascribe value to the metrics above, we need to break them into generally applicable buckets, each with its own role and value. I propose that those consistent buckets are:

  1. Discovery. Building awareness of the product.
  2. Engagement. Exploring the brand and product content.
  3. Amplification. Generating reach (earned media) through participation.
  4. Conversion. Sharing information and showing purchase intent.

These categories offer a lens through which nearly any social product promotion effort can be evaluated - and provide a framework for measuring aggregate success across social channels. Taking the example metrics above, it would break down like this:

  • 2,500,000 social customers saw a post announcing a new product
  • 50,000 of them clicked the post to check it out
  • 25,000 of those watched the video or explored the "product story" page
  • 5,000 liked, commented on, or shared the product
  • 5,000 created a story via an Open Graph action (want, love, own)
  • 5,000 "allowed" the app in order to share content
  • 1,000 added it to a "basket" and clicked to the e-store to check out

Now that we have categories in which to place these metrics, the next step is to develop an equation that represents their relative value.

Assigning Values

There is, of course, going to be some variability in the relative value of these metrics according to each brand and program. That said, I propose a generalized approach to establishing these values by moving back-to-front in the funnel.

For example, let's say that the "Product Launch" program above promotes a $50 consumer product. Walking backward up the funnel, here is how we can ascribe values to engagement actions. (Note: if you're not in a math-ing mood, you can skip to the next section, where I add it up.)

  • If half of the people who add the $50 item to their basket actually purchase the product, then the value of the "basket add" is fairly straightforward: $50/2 = $25; 1,000 of these conversions are then worth (1,000 * $25 =) $25,000.
  • The value of the 5,000 "allows" depends on a brand's average cost to acquire a new customer into its CRM/house-file, and whether or not, for example, an email address is collected. Sticking with a conservative figure of $2 per new customer record, 5,000 "allows" would be worth $10,000.
  • Value of direct sales = [average order size] * [social conversion rate]
  • Value of social opt-in = [cost per new customer record] * [number of allows]
  • 10,000 actions were taken that amplified the campaign to friends and followers. The most common way to value these actions is through their "earned media" value (free social impressions), which would be based on the overall CPM for the campaign. If we assume that each action reached about half of a person's 150 friends, that's (10,000 * 75 =) 750,000 additional impressions.
  • If it initially cost $50,000 to buy 2,500,000 impressions (that's a $20 CPM), then 750,000 additional people are worth $15,000.
  • But this, as experienced social marketers know, undervalues the reach and referrals that come through social sharing. This audience engages and converts at higher rates, because their friends shared directly with them. If we assume that is 1.5 times the usual rate (it's typically even higher than that), then the amplification value is $22,500.
  • Earned impressions = [number of amplification actions] * 75
  • Value of earned impressions = ([brand's average CPM] * [earned impressions]) * 1.5
  • This is the trickiest one to quantify. To put a value on the 25,000 "engagement actions" with the product requires a brand to decide how much more valuable it is when a social customer "explores a product" vs. "clicking on the ad." This is going to vary widely by brand and product.
  • If we look back at the CPM ($20), then this brand is paying $0.02 per ad impression. Our example brand decided it's worth $0.50 every time someone digs into the product content. That translates into (25,000 * $0.50 =) $12,500.
  • Value of product engagement = [number of engagement actions] * [value of engagement action ($.50)]
  • While discovery can easily get entangled with engagement, I'm going to try to keep it simple: discovery = clicked on the post. And since 50 percent of those who clicked on the post went on to truly engage with the content, it's worth half as much. That gives us a discovery value of (50,000 * $0.25 =) $12,500.
  • Value of discovery (click) = [number of post clicks] * ([percent of visitors who engage] * [value of engagement action])

OK…so that was a lot of math; let's see how it adds up.

Adding It Up

If you skipped the details, the figures we calculated above, according to the funnel outlined at the beginning, give us the following value:

Discovery - $12,500

Engagement - $12,500

Amplification - $22,500

Conversion - $35,000

Total ROI: $82,500

Assuming that the brand spent $50,000 on the ad buy and another $10,000 or so on the social product experience that drove the engagement and amplification, then they grossed $82,500 on $60,000 in total spend and reached a 37 percent ROI. Notably, leaving out any of the marketing funnel components would result in a very minimal or negative ROI for this campaign.

Applying the Model to Your Own Social Product Engagement Efforts

Odds are that that when marketers look at the assumptions, conversion rates, and relative values above, all kinds of comparisons and variances come to mind (e.g., "We expect to pay $3 per new customer email!" or "We'd never pay a CPM that high!").

In order for this framework to be useful for a particular brand, product, and campaign, it needs to be tailored to their value and budget assumptions. But - and here's the main point - what matters most is that marketers assign values when planning their social product promotion, and use those same values to measure the relative value of all actions in the funnel - both "high" and "low" - to determine social ROI.

ROI Target image on home page via Shutterstock.


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Kevin Tate

Kevin has been working with brands and retailers to build e-commerce and social media marketing solutions since 1995. As an entrepreneur and business development leader in growth-stage companies, he is most interested in developing new markets at the intersection of consumers, brands, and emerging technologies. Kevin currently leads marketing and product management at ShopIgniter, providers of Enterprise Social Commerce solutions to the F1000.

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