Understanding the effectiveness of a marketing channel fully requires understanding the revenue impact that the channel drives. Both as a source of a prospect (e.g. prospects who respond to a notification email spends $12.17 in their first year with us) and, as an influence on a prospect (e.g. sending a prospect monthly nurture emails increases their average yearly purchase amount by 45%).
In social media, the channels are to new to get a full understanding of value. Understanding the influence of Facebook or Twitter content is much harder then email, because the reports on social activity generally don't give you reports per prospect.
To really measure this, you need to have a marketing prospect database that can identify the activity of individual users on that network (both reading/consuming as well as commenting/interacting). A system that did this would really help marketers measure their efforts, but is still a ways out - I'd expect early majority companies to start implementing solutions for this in the next 2-5 years.
In the interim, I use 3 tactics with my business and with friends I advise, to help create an estimate of the value my social channels create - and to understand where I need to make investments to improve.
Should I grow my audience? (start by understanding size):
A lot of people ask if they should invest in trying to grow their audience.
First look at the size of your audience today, and then map out what you expect the total addressable audience could be. Be realistic with your addressable audience - this should only include people who like consuming information on facebook and would be a good fit demographically and behaviorally in your audience.
If you're only addressing a small percentage of your possible audience then you can soundly invest effort in growing your audience. Your investments should be of an experimental budget size until you understand the value they produce (next section).
First, understand value through interactivity:
What I mean here, is understand how many people consume your content and how many people react to it. In email, this would be Open Rate (read) and Clicks (reaction). In Facebook, for example, one would use the Post Impressions to gauge # of readers and the Post Feedback for the number of reactors.
If you have a large disconnect between audience members and readers, then you either have the wrong people in your audience or you're providing the wrong type of content to them. To solve this you should try new forms of content and look for ways to re-activate some of those dormant subscribers (in email, targeted mails. in Facebook, targeted ads).
Once you have engagement, test non-monetary brand-friendly actions:
One you have an engaged group, you can start including brand friendly actions in your content. Start by asking people to provide something of value, here are a few ideas:
The aim of this exercise is to figure out how much you can direct your audience towards specific actions. These types of brand-friendly actions are where you'll extract a lot of the ongoing ("earned") value from this channel.
Finally, layer in monetary asks:
Since you probably aren't able (or ready) to start segmenting and analyzing the on-going influence your social channels have on revenue, you can start measuring a portion of value based on specifically trying to drive purchases through social channels.
To test this, try offering a product exclusively through your Facebook/Twitter channels and use the sales of that product to understand the audience on that channels penchant for conversion/monetization.
Know that this is a rudimentary measurement and is only understanding a part of the potential influence social is having over prospects, but if your audience is converting well here - it's a great indicator that you've built up a strong relationship and the lifetime value of that audience will be high.
Know that using a nurture channel where people want informative content to push a sale can deteriorate the quality of your audience. If you abuse this final step and your audience isn't interested in it, you will end up having to rehabilitate your audience (see the second paragraph of "First, understand value through interactivity.")
This post is a bit rough - which is caused by the fact that work is extraordinarily busy right now. If you have suggestions on how to improve it, or want to point out a stupid gramatical error or word choice - please email me.