A way too heady discussion of conversion and ROI
At globalseven we get asked a ton about social media ROI and conversion rates. Unfortunately, any conversation about those two subjects seems to be rather dry and boring. I hope you forgive me for the heady and dry material below, but I think that it is a crucial discussion that is essential to an understanding of successful marketing.
Conversion rates and ROI as they pertain to social media are very hard measurements to track. The same might be said for direct email campaigns. While we may not be able to put an exact tangible number on the benefits of these tools, we know for sure that they are valuable in terms of a company’s goodwill. Regardless of the difficulty of tracking these metrics, there are several reliable industry statistics show some staggering numbers as to the value of social media. The closest reliable statistic that we can use to track the effectiveness of social media marketing is a conversion rate based on general website business conversion, or more simply put how many visitors to your website become clients. Given the similarities between platforms, using this type of conversion rate data should be considered very reliable.
Conversion rates, or the percentage of consumers that actually make a purchase, varies from one website to another. A recent study by Intermarket Online states that the average online consumer conversion rate is 2.7%, and that 62% of merchants have a conversion rate of 2% or less, while 5% have in excess of a 6% conversion rate. A Forrester Research study of 41 online merchants found that conversion rates typically vary from 1% to 4%, with under 2% for 70% of merchants. Amazon and CDNow get 6% to 8% rates.(Micheal Brito 2010)
Let’s assume a very low conversion rate of 1%.
By using a pay-per-click advertising model we can see exponential growth to our traffic, and thus our conversions. Let’s do some simple math to figure out what our ROI will be based on some statistics provided by Facebook, paired with our 1% conversion rate. According to Facebook the average number of clicks a business can expect thru their PPC model is 78 per day, or roughly 2340/mth. Let’s be pessimistic and round down to 2000 clicks/mth. At an estimated .50 cent charge per click we are looking at a monthly cost of $1000. With a 1% conversion rate, that $1000 spent will translate into 20 new clients. At an average income of $250 per client we can assume a revenue of $5000, or 400% ROI.
Estimated clicks: 2000
1% conversion rate: 20 new clients
Estimated cost per click: .50
Estimated total revenue: $5000
Estimated ROI: 400%
In addition to these statistics there have been several studies that illustrate the non-tangible results of social media. Take a look at the following study and results that were compiled by Hubspot.
Dessert Gallery, a popular Houston-based bakery and café chain, experimented with a Facebook Fan Page to measure how helpful the popular social media site really is. They set up a “sweet” Fan Page and updated it regularly with pictures, contests, reviews and other items designed to interact with their customers. Three months later, they surveyed over 13,000 customers on shopping behavior and store evaluations and received a significantly higher and more positive response from those customers who became Facebook fans.
In fact, the study found that compared with typical Dessert Gallery (DG) customers, the company’s Facebook fans:
- Made 36% more visits to DG’s stores each month
- Spent 45% more of their eating-out dollars at DG
- Spent 33% more at DG’s stores
- Had 14% higher emotional attachment to the DG brand
- Had 41% greater psychological loyalty toward DG
Here are 5 key takeaways from Dessert Gallery’s example:
2. Engage with your community for free and easily post up-to-date information about promotions, new products, upcoming events, etc.
3. Strengthen customer relations by interacting with customers directly on a social level as opposed to a business level.
4. Listen to customers’ feedback. Customers are more likely to share reviews about products/services as well as good or bad experiences online, so utilize the information presented for your company’s benefit.
5. Keep expenses low by building a Facebook Fan Page for free. Take advantage of low-cost, online resources instead of spending money on direct mail and paper advertisements.