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| Courtesy of Farmhouse Creative |
Next week we are responsible
for submitting a digital paper reflecting the engagement performance of our
blogs on different social media channels. This weeks readings were designed to
assist us with examining our performance.
60
Second Marketer posted a blog titled “An In-Depth Guide on How to Calculate the ROI [return on
investment] of a Social Media Campaign” and the goal is to get the reader to
understand how to use a “customer lifetime value as the foundation for
calculating the ROI of a social media campaign” (Turner, 2013). The blog states that while most people
understand that ROI is important, only 10% of businesses can tell if their
social media campaigns had a positive ROI. In this blog we are given a simple
definition of CLV [customer lifetime value] “the amount of revenue a typical
customer will generate for your company during the customer’s engagement with
your brand” (Turner, 2013).
This week’s blog post is
going to contextualize the ROI calculation process, as it is something we
should all have an understanding of. Below is our hypothetical scenario
[similar one found on the blog].
You work for MAC Cosmetics.
Your average customer spends $150 per month on cosmetics [a girl can dream] and
shops with you for 5 years. We must first calculate the CLV:
$150/ month x 12 months x 5
years = $9,000 CLV [this is insane but go with it].
So now that we know that the
average new customer is worth $9,000- we need to determine how much money we
should spend to acquire each new customer. 60 Second Marketer says this number
is called the Customer Acquisition Cost (CAC) and the general rule of thumb is
that the CAC should be 10% of your CLV.
10% of $9,000 = $900.
We should look to spend no
more than $900 acquiring each new customer [while 10% is a good rule-of-thumb/
place to start, you obviously want to bump that number down as much as
possible].
Now we need to look at our
total marketing and social media budgets. I’m going to pick easy numbers for
the sake of simplicity.
Marketing budget: $9million ($9
million / $900 acquisition = $10,000 acquisitions)
Social media budget: $900,000
[ideally 10% of the marketing budget]
SO- if your social media budget
is 10% of your marketing budget, you need for your social media sites to bring
in 10% of business.
If your total marketing spend
is $9 million dollars, you should have
10,000 acquisitions. If your total social media spend is $900,000 [10%
of budget] you should have 1,000 acquisitions
from social media sites [10% of total acquisitions].
60 Second Marketer uses an
average of 1% conversion rate. Meaning, of every 100 people who make it to MAC
Cosmetics’ landing page from a social media site, 1 person will convert.
See hub- and- spoke wheel
below.
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| Courtesy of 60 Second Marketer |
If we can expect 1 out of
every 100 customers to convert, we will need 100,000 people to visit the
landing page from social media sites, in order to get 1,000 new customers, in
order to justify the money spent trying to acquire said customers through
social media sites.
To review we already know our
CLV ($9,000) and we want our CAC to be 10% of that- $900.
This means we can spend
$900,000 to get 100,000 people to our landing page through social media sites.
If we do that, and 1% of them convert (1,000) then our CAC is $900.
Once you have your math
figured out, the rest is monitoring activity through social media sites.
Action items are to:
- Review the math above- perhaps run through it with your own scenarios to make sure you understand it.
- Review the sections in 60 Second Marketer’s blog titled “How to Identify Social Media Leads” and “Increasing Customer Lifetime Value
- Provide some recommendations that you would give to a company who wants to increase their CLV
- Speak to any social media monitoring tools you’ve used and provide some insight to the group
- Scott (2015) talks about search engine marketing (SEO) – how can utilizing SEO help increase ROI / boost overall social media marketing & send more people to the landing page?
Thanks everyone!
Turner, J. (2013). An In-Depth Guide on
Calculating the ROI of a Social Media Campaign. Retrieved February 28, 2016,
from
http://60secondmarketer.com/blog/2013/11/17/in-depth-guide-calculating-social-media-roi/
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