Social Media Advertising: Which is the Most Important Metric?

You’re a small business owner who sees the value in having a social media presence. Posting and engaging with your audience across multiple social media platforms worked for a while. It has helped boost brand awareness, and you’ve seen an increase in business from the leads who’ve been driven to your website.

However, at some point you decided to up the ante by starting a paid social media ad campaign. A social media presence yourself, you were inclined to venture in this direction after witnessing how other businesses were able to use paid social media advertising to draw more leads into their sales funnel. 

But now you’re knee-deep in data and don’t know which metric tells you the most about your investment. You don’t know whether you should keep going or pull out. Likes, shares and other impressions seem to be high, yet you’re not exactly feeling the love in your bottom line.   

Well, fret no more. We’re here to help. We’ll start by telling you that the metric you should be looking at is either your ROI or ROAS. You’ll have to read further to find out which.

No, it’s not a way to reel you in (actually, sort of); it’s just that you’ll better understand why the winner is the champ when you see how he faces off in a match against his biggest opponent.

Wait, There’s a Difference Between ROAS and ROI?!

It’s easy to interchange return on ad spend (ROAS) and return on investment (ROI). To many they sound one in the same, but their functions are quite different. It’s vital you know how both work because whichever you choose will affect your bottom line and your outlook on campaign performance.  

ROAS

This metric is centered around your tactic, which in this case is advertising. It gauges the efficacy of a paid social media advertising campaign by measuring gross revenue against how many dollars are spent on advertising.

In essence, it compares the amount spent versus the amount earned. Its goal and central focus is to expand one’s business through increasing/incremental conversions, and therefore measures the effectiveness of paid social media advertising campaigns.  

The formula for calculating your ROAS is rather simple:

Revenue from ad campaign / cost to run ad campaign = ROAS

So, let’s say your business spends $1,000 to run a paid social ad campaign this month, and during this month the campaign has a yield of $10,000. Your ROAS would be $10; meaning, for every dollar you spent on the advertising campaign, you brought in $10 worth of revenue.

ROI

This metric is more strategy-oriented and business-minded. It is a percentage that measures profit generated by ads relative to the cost of the ad itself. Earnings are only accounted for after all expenses have been subtracted, including cost of the developer to create the ad and landing page, time spent keyword researching, and any other tasks associated with production.

You can tally your ROI by simply using this formula:

Profits - Investment X 100 / Investment = ROI

Now, let’s use the same example from above. Your entire investment, including time, money, and resources comes to $1,000 and, again, you yielded a profit of $10,000. Your ROI would be 900%.

On the face, both sound similar, but you’ll soon realize why one is very different from the other.

The Metric Face-Off: ROI vs. ROAS

You know that marketing is a cost of doing business; however, you want that cost to pay off handsomely. Your mindset should always be to get a return on every dollar spent on marketing, and not say, “Hey, I lost $200 but I reached my goal of 1,000 likes”.

This is where ROAS and ROI differ: rationale and profitability.

ROAS is a simpler metric that often looks at marketing as a cost of doing business. As long as the conversion goal is met or exceeded, that which was spent becomes trivial in comparison. This is seen in its lack of accountability; it only considers the cost of running the ad campaign.   

Moreover, ROAS has the ability to increase advertising costs if you don’t have the discipline to adhere to a strict and targeted profit margin that aims to keep bids and spending in check. You could end up going over budget without really cumulating every additional dollar spent on advertising.

ROI, on the other hand, is more granular. It says marketing is an investment designed to grow your business’s profits over time. True profit therefore is not earned until every single dollar invested into the ad campaign—from beginning to end—is accounted for.

So, what it comes down to is where your focus is and what matters most to your business and its bottom line, because if you were to calculate the two separately, you would come to different conclusions like we did in the section above.

Currently, many businesses are stuck on an ROAS model when it comes to social media advertising (or any advertising for that matter), and it muddies their view of campaign performance.

ROI is the metric that truly comprehends the incrementality of every dollar spent. It focuses on driving business, not just advertising performance. Compared to ROAS, it is the most effective at gauging how ads contribute to your bottom line.

Using both together can be helpful, but many marketers and businesses are moving away from a ROAS-focused model when it comes to digital advertising and are rather honing in more on a rigorous ROI-focused model. You can see why!

How to REALLY Determine Your Paid Social Media Advertising ROI

OK, brace yourself. We are about to get into the nitty gritty. One thing we guarantee is you’ll look at your paid social media ad campaign differently. Once you do the math you might be floored, but you’ll make wiser decisions moving forward and waste less time making them.

Let’s get into it:

ROI is a percentage and ROAS gives you an actual figure. Many business owners are inclined to look at the dollar versus the percentage.

• Don’t be fooled. What you may not realize is that dollar figure proposed by ROAS does not account for all the time, money, and resources invested in the campaign. ROI does.
• Did you hire an in-house designer to create your ads and landing pages? If so, how much did they charge per hour for their services and how how many hours did it take them to get the project completed?
• How much did you pay Facebook, Twitter, Instragram, etc. to run the campaign?
• How much does the marketing team member who performed the keyword research used for the ad and landing page get paid per hour? How many hours did he or she spend?
• What about the time it took the marketing team member to get the campaign launched?
• Was a social media consultant used to monitor user engagement with the campaign and keep conversations flowing or tailor messaging to improve engagement and your presence?
• Did you tweak the campaign at any point? If so, whose time was spent there and how much do you pay them?  
• If you have attempted to build and run the campaign yourself, how much is your time worth? What areas of your business are being sacrificed when you’re plugging away at the project?
• Are there any other overhead expenses accrued during the project?

As you see, there is a lot more to consider when you step back and look at the full investment, as opposed to just the ad spend.

When you’re trying to determine your real ROI, you need to tally all of these things and then subtract the amount from profits earned (or revenue directly generated from your social media ad campaigns). You can track and gather the latter in multiple ways, but one is using the free analytics tools provided by the social media channels you are running campaigns on.

Speaking of multiple campaigns: if you are running campaigns on multiple channels, you will want to see what your ROI is for each, so you can determine which, if any, are a good investment of your time and money.

The campaigns that are not can be rid, or you might find it worthwhile to use data to do some investigating into why the campaign is not performing as well as the others, then tweak for better results.

To sum this segment up, when calculating your ROI, look at:

• Labor
• Training
• Development
• Social media technology
• Agencies and consultants
• Advertising budget
• Overhead

No matter what the outcome once you calculate your ROI, the good news in all of this is that you are pulling and analyzing data. Regardless of the time and energy spent doing this arduous task, it is one of the true necessities of any marketing campaign, because it will tell you everything you need to know about performance and your bottom line.