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Here’s the formula: R + iR + P * 1/6 > (I + Mc) * 1.1
R: Revenues directly deriving from social media activity
iR: Indirect revenues from social media activity
Mc: Marketing costs
I: Invested capital in social media
1.1: Recommended minimal profitability ratio
P: Passive social media value in 6-year periods
The left side needs to be larger than the right side. Whenever this is true you should invest.
But what does it mean?
Many executives approached iSEE to say "we want to grow on social media" while not knowing why and how. Surely, social media can add tremendous value to any business. Some have made multibillion-dollar companies simply by using daft social media strategies, while others like Apple did not even use an official corporate Twitter account until recently.
So, when does it make sense to invest in social media, and how much should you invest?
It is a dirty word for many. But the basic success of every business is in its ability to sell. Social media should be seen only as a tool to sell directly or indirectly. If you cannot sell via social media, do not use it. It is the hard truth. Brands are not built on social media. Brands are built with PR.
Apple did not sell iPhones over Facebook. It focused its ad dollars elsewhere and up until recently, it did not have an integrated social media strategy. Tesla deleted its Facebook accounts because of ‘ethical’ reasons but it kept its Instagram page, probably because of commercial reasons. Cars can be sold on Instagram.
If you run a micro company and social media is not important for sales, consider adding a few timeless posts on all major social media channels to get the SEO benefits. Updating social media regularly can become a cost canter that does not justify the investment. On the other side, if you are Tim Cook from Apple and you have more than 13 million followers on Apple's Facebook page, and 4.4 million on Twitter but do not use them actively, you incur opportunity costs because of habits that no longer make sense.
A company does not even need 4 million followers to start thinking about social media. Look at the following case studies for B2B and B2C brands.
LinkedIn and similar professional social media networks make all the difference in researching prospects, acquiring leads, and building meaningful relationships with potential clients. Having a proper presence on LinkedIn is also important for finding and hiring talent, identifying suppliers, and building strategic alliances.
Case study: Meaningful data harvesting, connection building, and thought leadership on LinkedIn made one Aussie B2B company grow 40x in three years. What they did differently was the ABM approach. They understood they could not contact executives right away but needed to engage them first and learn more about the decision-making in their companies. They developed the following methodology to warm up key potential accounts:
The simple tactic provided results far more than any cold outreach. After all, CEOs and executives are usually normal people like everybody else, valuing human engagement.
If the company is B2C it can use any social media channel to acquire sales leads. However, to do it right with limited resources it is optimal to focus all your efforts on only one social media channel. Aim for depth over width. Ads, likes, followers, content, everything can be focused on one channel that can create spillovers to other channels. All with the goal to sell, not entertain. Only when the company masters one B2C social media channel it should continue to the other ones.
Case study: Many aspire to be featured on social media. Imagine you get an email scrapped from your Instagram profile to be offered a free product. Aside from the freebie you are also offered the chance to be featured on a social media account with 100000+ followers as a ‘model’. You would likely be surprised and feel honoured. Then you are offered the ‘$80’ product for free. However, you still need to pay the shipping fee of a ‘mere’ $14.
The real product price is $4 and the shipping is free, so basically the seller makes $10 out of each sale. But the consumers did not know this. They still felt special. Telling them the truth would insult them. They got the superstar treatment and thought "why not". They bought the ‘shipping’ and their fake positive.
These buyers PAY to be seen as if they are modelling and there are hundreds of thousands of such clients on social media. This company was started by a 20-year-old Portuguese fellow.
The business has been profitable since year 1, generating 30k-60k per month.
In his initial business development, he focused 100% on Instagram by growing the profile with a strategic following and scrapping emails. He was able to target influencers with something they could not refuse. Greater exposure and a superstar treatment.
This young entrepreneur’s strategy was Instagram-centric. He did quite well by appealing to users’ motivations and the reasons why they use Instagram. However, the moment he tried to turn past clients into affiliate partners he realized that he was too truthful. He saw his recurring purchases temporarily collapse. No one wanted to hear the truth. They needed a sweet little lie without knowing they paid for the product.
Anyway, successful businesses are about creating lasting ‘tribes’ or partners:
Generally, the easiest way to create social circles is on social media. For B2B brands this would be LinkedIn in the Western world, Xing in the DACH region, and Ushi or Jungwei in China. For B2C brands it is WeChat in China and Facebook & Instagram in the Western world. Of course, assuming the internet is free, which is not true. That is why tribes are made offline.
With regards to sales, as mentioned, when the resources are limited, it is better to focus on only one social media channel and do it right, instead of focusing on many, with shallow results.
Regardless of the chosen social media platform, it is crucial to understand the segments and the value proposition offered to them. This cannot be written with a formula. However, a formula can be useful in assessing whether a company invests too much or too little in social media.
Finally, here’s the formula again
R + iR + S*1/6 > (I + Mc) x 1.1
R: annual revenues generated directly by using social media. One can attribute the revenue to social media through different means. R leads were acquired and closed by using social media.
iR: indirect revenues generated by social media presence are the revenues coming to the business attributed to social media indirectly. iR is needed when companies find it difficult to attribute multitouch sales to only one parameter such as R. If R are sales which were 70% closed on social media, iR are sales which were at least 20%-60% closed with social media assistance.
I: investment in social media made over one year, including ads, boosts, and influencers.
Mc: marketing costs attributable to social media personnel, including operating costs, agency, and contractor fees.
1.1: The social media business goal is to achieve a return on investment. A 1.1 (10%) return is minimally satisfying even if the company only has well-branded inactive accounts. Hence, the recommended "1.1" investment ratio.
P: is the standard minimal value created only by having inactive but well-branded social media accounts over two years. These accounts will slightly increase conversion rates by building trust and by sending more qualified traffic to the business.
P is different than R and iR. Here, P stands for the value of the original new traffic generated just by having the social media accounts. One can do that by using this subformula:
P = Number of new visitors to the business coming from all social media not only the actively maintained one X the average web conversion rate X average sale size, approximated for longer periods of time. It is recommended to calculate P for six-year periods.
Most of the time because of proper attribution of R and iR companies do not need P. But it is good for transparency to passive value-added of all social media accounts.
1/6: If the company needs P in the equation, the value of social media accounts fully matures in periods of six years. If one calculates the value of P today for two years it would be "2/6" of the six-year period. Hence, the "1/6" for one-year periods ratio which can also be written as "0.1666".
EXTRA VALUE BELOW: HOW TO OPTIMIZE THE R IN THE EQUATION?
What is the best way to grow social media presence? Through partnerships, and ads. Here iSEE will focus on the ads. To justify the investment the company needs ads growing subscriber lists, making sales, or getting authentic prospects as followers.
Automation to turn every engagement such as a like or a retweet into a potential prospect helps. Here iSEE mentions the example of HootSuite + CRM integration that can auto post, auto-reply, and auto-engage. It brings all social media communication into one Chanel. This integration can transform each like or comment into a potential lead in the CRM. It even automates responses to some of the leads.
Growing ‘organically’ or with ads on social media can be directly turned into a sales funnel. Why waste the opportunity? If the company does social media, it should do it right.
Other platforms such as Salesforce and Zoho One allow similar features and integrations. What’s unique about Zoho is its whole-in-one package where with only one subscription to Zoho One, users get access to Zoho Social, Zoho CRM, emailing automation, invoicing, and project management.
Salesforce has better branding and it is considered a ‘safer’ option for many brands. Zoho is about massive value-added and rock-bottom prices. Yet, they are getting better at branding. iSEE recommends Salesforce to American organizations and Zoho One to international ones.
Do you like how we think at iSEE? Contact us today.