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Social media is widely regarded as a strategic resource to improve firm performance. However, there are mixed findings on how businesses can use social media for better performance. This study aims to propose and test a mechanism through which social media can influence firm performance.

A survey approach was used to collect data from 262 small businesses in South Africa. The data were analysed using structural equation modelling (SEM) to assess the hypothesised relationships.

The findings support the significant role of social media in fostering firm performance. It is observed that the use of social media influences firm performance through three key customer-centric constructs: the strength of customer–firm relationships, customer orientation and customer co-creation. Additionally, the relationship between the strength of customer–firm relationships and firm performance is moderated by customer co-creation.

The study provides new insights into the mechanism through which social media fosters firm performance. Due to a lack of universality in establishing the direct effect of social media use on firm performance, providing evidence of an indirect path becomes vital for advancing knowledge on social media use in business. As such, this study contributes to the literature on social media and entrepreneurship by demonstrating a novel mechanism through which social media influences firm performance.