How to Determine the ROI of Social Media Ads for MSPs

For many MSPs the ultimate goal for all of their marketing efforts is more monthly recurring revenue (MRR) from consistent client engagements. Signing an MRR contract is the culmination of what can sometimes be several months of effort and those efforts often begin with digital marketing. To be more specific, a successful MRR engagement can start with a successful social media ad.

If you want qualified leads for your sales team, a powerful place to start is a social ad in either LinkedIn for Facebook.  Here’s why:

Breakdown of a social media ad engagement for an MSP:

This is a simplified example but one that’s possible when a firm rolls out a solid social ad strategy within an overall digital marketing strategy.For an investment of $100, a savvy MSP can land a deal worth $72,000 over the life of the engagement with the client.

In this article, we’ll reveal the core economic considerations for MSPs in search of MRR through social ads on LinkedIn and Facebook. Let’s start with the baseline of useful terms for social ads:

CPM: Cost per thousand relates to the amount of people who see your ad and how much the social platform you’re using will charge you for that exposure. Here’s an example: If an MSP is launching a marketing campaign with a vendor, that firm may want to get large amounts of traffic and exposure to their ads in a short period of time. That could be for many reasons such as proof of performance or to meet a promotional deadline. Keep in mind this doesn’t push click conversions where the prospect moves directly to lead status. It is a great way to get eyes on your brand and generate buzz around who you are and what you do. Final consideration, it’s more expensive than other pricing structures such as cost per click. Here’s more on that:

CPC: Cost per click allows you to pay based on an action the person who has viewed your ad is taking. This is quality traffic because the ad viewer is making a proactive step to interact with your brand. Typically less expensive than CPM, CPC bidding structures help you play the long game to pull in qualified, targeted leads that are more likely to convert into solid clients for your MSP business.

CTR: Click through rates represent the percentage of clicks your ads receive when they’re presented to viewers on a social platform. This number is especially important for CPC campaigns, but it’s an important metric overall and is a solid indicator of the power of the ad itself (both design and messaging).

Those are the top line metrics you’ll want to consider. As you drill down into the specifics of each platform, LinkedIn and Facebook, you’ll run into more phrases and terms that can affect the success of your efforts. One, in particular, is audience selection. In some instances, Facebook factors audience targeting into its pricing structure.

The great thing for MSPs is that LinkedIn is hyper-focused on delivering targeted and accurate information about the details of its audience. It’s important to know LinkedIn is much more dependent on the user self-reporting whereas Facebook does more to analyze user behavior. This affects your business in that the information about the audience you’re targeting, whether on Facebook or LinkedIn, won’t always be 100% accurate.  You’ll have to test and analyze on your own based on the leads you’re receiving to ensure you’re selecting the right audience for your marketing efforts on each platform.

How Customer Lifetime Value Makes Business Growth a Simple Numbers Game

The financial side of social ads for MSPs can be quite complicated, but it’s not an impossible or overly expensive endeavor. Here’s why: When you understand a key element of your business, spending on social ads becomes a simple math formula of predictable output based on input. That key element is lifetime customer value. The essentials of social ads turn on this one number. When you understand it and make it as accurate as possible, deciding on your budget becomes less difficult.

Here’s what factors into a customer lifetime value:

Average customer lifespan with your business: Take a look at historical data. On average, how long does a customer remain with your company? If you run a high-volume business, take the average of the top 20 percent of your business based on revenue generated. Most SaaS, cloud, and/or service providers in technology calculate commissions based on a three-year customer lifespan with their firm. This varies by company and product line, but it’s a good place to start as you begin estimating.

You may think, “Should I segment this list based on what I’m offering? Services vs. one-off engagements?” The answer is no. If you can depend on a customer to purchase from your business at least once per year. then you’ll want to include that firm’s numbers in your calculations.

Here’s the simplest equation we found:

M = monthly expenditures

T = time in years spent with your firm

LTV = customer lifetime value

12(M) x T = LTV

As an example, let’s say an MSP has 1,000 customers over the 10 years of its existence. The firm takes the top 20% (200) companies as a representative sample.

On average those 200 firms stay with the MSP for three years. And the average monthly transaction value is $10,000. Let’s plug these numbers into the equation to reveal the MSP’s customer lifetime value:

M = 10,000

T = 3

12(10,000) x 3 = 360,000

LTV = $360,000

So the average customer lifetime value for the MSP in this example is $360,000.

Now spending $1,000 per month on social ads to attract qualified leads doesn’t seem completely out of reach. Under these circumstances, social ads give your MSP business a solid competitive advantage once you’ve found the right balance between social ad budget and qualified lead acquisition.

The equation above is simplified. Many other variables factor into a solid LTV. Consider reviewing this site to take a deeper dive into the topic.

Brass Tacks: Will These Ads Make Your MSP Business Money?

One of the toughest parts of digital marketing for MSP businesses is finding out just how much to spend on a consistent basis on social media ads. We’ve already shared the customer lifetime value equation to help you see the overall value and long-term value.

Now let’s take a deal-level view of social media ads. You’ll want to determine a few things including: monthly social ad budget, CPC, your landing page conversion rate, customer LTV (see above), and finally your lead-to-customer conversion rate. Here’s a breakdown of each area and how they apply to your success with social ads:

Monthly social ad budget: You can get creative with this number and divide your monthly ad spend among an array of ads to uncover the best tactic for bringing in qualified leads through social ads. Both Facebook and LinkedIn have a variety of ad types with LinkedIn just launching video ads for its platform. No matter which ad type you choose, just make sure it’s filled with value and inspires interest in your target audience. That way you can be sure your budget won’t be wasted. Audience selection is important, but success with social ads hinges on making an ad and having an offer that solves a problem for your ideal customer.

CPC: Estimate what you cost per click would be by determining how much a click would be worth to your firm. To know the worth of a click, you’ll need to know how often you convert a web visitor into a lead. Keep a close eye on your metrics in this case and come up with a number that makes sense. It’s important to note that in the initial stages of this process (determining the ROI of social ads) you’re going to be doing some guessing until you deploy a few ads and see how they perform over time. This gives you a baseline you can refer to for future social ad campaigns.

Note: A recent study by Wordstream has the average cost per click for the technology industry at $1.27. The study breaks down CPC for other industries as well. Check out the full study here.  

Landing page conversion rate: When you create an offer, you’ll want to develop a solid landing page that details what’s in the content offer and why your ideal customer should give you their information in exchange for their contact information. When you create this landing page, be sure to keep an eye on how many people are converting into leads when they visit. Hold on to this metric because it will be helpful in determining your social ad ROI over time. The landing page conversion rate is a critical number because you may want to increase the amount you invest in CPC if you have a landing page with a high conversion rate.

Customer LTV: With the average lifetime value you have the most powerful tool in your arsenal for determining the ROI of your ads. Start with our simple formula and become more specific and add variables to make the number truly representative of how much a new customer is worth to your brand.

Sales conversion rate: This number represents how often your sales team converts web leads into customers. This number helps you accurately define and predict the impact of your social ads.

Now that you have all of these numbers, your next step is to enter them into a calculator that gives you an idea of what your ROI will be. Our friends at Hubspot have created a social ad ROI calculator. Plug your numbers in and determine just how big of an impact social ads will have on your business.

Final Takeaway: Infuse Power Into Your Social Ads

The information above lays out the overall impact of social ads, but if the offer behind the ad doesn’t truly speak to your audience, it’ll go over like a lead balloon. To avoid wasting time, money, and effort consider working with a team of experts who can help you define your target audience, pinpoint the challenges they’re facing, and design a high-impact offer that helps to move your ideal customers closer to working with your MSP business. Let’s have a conversation about developing a strategy that brings in a consistent stream of qualified leads for your firm.