There are lot of benefits to building an engaging social presence. Your social activity can help build your brand presence, connect with a target audience, provide customer service and generate new opportunities. That said, many of our clients need to grow revenue to afford increased marketing expenditures. Or said another way, will my Facebook lead generation efforts yield a positive ROI?

To answer that question, it is best to work backwards from sales. Using the below formula, you can determine if it is worth considering the Facebook Lead Generation Campaign:

Breakeven Sales = Set-up costs / [Sales Margin – (Cost per Click / Conversion Rate)]

Let’s analyze the above formula with an example:

Acme Company sells sunglasses for a $150, at a cost of $50, creating a Sales Margin per unit of $100. They know from initial trial experience that they can drive potential buyers to their website at a cost-per-click of $0.75. Acme believes it can then convert 1% of that traffic to buyers. This means that they will need to spend $75 to generate one sale. This means each sale adds $25 to the bottom line.

However, there are usually set-up costs for this type of campaign which include creative development and advertising management. If the set-up costs are $2,000 then the company will need to sell 80 sunglasses to break even. In addition, if you multiply the units (80) by the costs to generate one sales ($75), you can calculate that ACME will need to spend $6,000 to reach breakeven on this campaign.

While this model is a bit oversimplified and many small businesses do not have accurate estimates for each of these numbers, using this model will help expose issues before you start. For example:

  • Don’t start a social media lead generation program without some reasonable estimate for each of the components in the calculation. Some research money should be invested to get an initial estimate of cost-per-click and conversion rate.
  • If your cost to generate a sale (cost per click / conversion rate) is more than your sales margin, there will be no way to generate positive ROI.

For most small businesses, these numbers will be negative when first trying this calculation. That is okay. This simplified model fails to account for the increased brand exposure from your ads, the ability to retarget people that came to your website but did not buy immediately, nor secondary purchases from consumers that bought sunglasses plus other items – whether today or in the future.

Bottom line, it is worth the investment to embark on a social media lead generation program even if it does not generate profits on the first try. That said, the above calculation will help you do it with your eyes wide open, a way to measure success and a clear understanding of the costs and risk.