The return of investment is one of the central factors in business administration and thus naturally also in social media marketing. ROI is how profitable a single campaign is. The Return of Investment (ROI) thus indicates how economically a single campaign or an operational area is in relation to the investment made. On the basis of this key figure one can make decisions:
- Analysis and comparison of individual company divisions and (as in our example) investment properties
- Determination and evaluation of the performance of an investment (in the example) for a past period
- Planning and control of future investments
Before you start a campaign, there is a lot to consider in advance. From the sound concept to the elaborated strategy to the proof of concept, the functioning model. Through optimization the profit increases and negative campaigns are deactivated. Someday it will be there, the return of invest. From now on the campaign can be profitable.
Concept and strategy
Depending on the goals pursued in social media marketing, the corresponding concepts and strategies know each other.
Whether influencer campaign on YouTube, or media budget for the advertisement, with re-targeting for your own online shop. In all cases, certain funds are invested in order to achieve a certain objective. The question now is, which campaign promises more profitability? Which campaign brings more profit, per invested Euro?
Costs are an extremely important factor right from the start, in terms of concept and strategy. Ultimately, the campaigns are limited to a certain period of time. Sometimes by a fixed budget, sometimes by seasonal characteristics (fashion), sometimes by the half-life of the product, e.g. with trend products, or also video games, whose platform is constantly technically accessible.
Now in social media marketing we have different possibilities on our desk. Community Management, Advertisements on Facebook, Advertisements on Instagram, Advertisements on YouTube, Organic Reach, we all video clips, the whole range of possibilities is open to you. In order to make a comparison, the key figures of the individual divisions are taken into account.
Calculation and example
You have a media budget of 50.000 €. With this budget you ideally want to implement as much as possible. As much reach as possible, as much sales and as much turnover as possible. If your expected turnover is then 70.000, your return of invest is 0.40
Formula for calculation
- Profit generated / capital employed = ROI
- 20.000 Euro / 50.000 Euro = 0.4
The return of invest now means that you will earn 40 cents for every euro you spend. If you now compare different campaigns with each other and compare their costs as well as the expected profits, you can make statements about which social media campaign you invest in and which not.