Companies are still struggling to determine social media ROI. There are some quantifiable metrics that are being used to determine ROI such as keyword rankings, site traffic, conversion rates, sales, etc. However we’re still missing a piece of the puzzle.
The reason why it’s difficult for a lot of companies to calculate their social media ROI actually has nothing to do with social media. It has to do with companies not knowing the value of their customers. If we are going to start looking at social media in terms of quantifiable numbers then we need to start understanding how much our customers are worth, and this means looking at more than just how much a customer spends. A customers value is not equal to how much they spend at your store. It’s far more.
Here’s one example of how to calculate the LIFETIME value and profit from a customer. The article also has a free excel file with created formulas that you can use.
A recent study in 2008 by DEI Worldwide on the Impact of Social Media on Customer Behavior was able to provide the following interesting statistics:
- 70% of consumers have visited social media sites to get information
- 49% of these consumers made a purchase decision based on the info they found through social media sites
- 60% of people in the study said they are likely to use social media sites to pass along info to other online
- 45% of people who searched for info via social media sites engaged in WOM compared to 36% who found info on a company or news site
There’s more useful info in the study so I highly suggest that you take a look. So what does all of this information mean? It means that organizations need to be able to answer “value” questions about their customers so that they can translate the value into ROI from social media.
Here are a few questions I think organizations need to be able to answer.
- How much is a customer worth?
- How much does the average customer spend per transaction?
- Is a customer more likely to purchase a product after some sort of social media interaction?
- How much is it worth to convert an unhappy customer to a happy customer?
- On average how many people does a happy customer tell about a product or service?
- How much can an unhappy customer hurt you?
You don’t need exact numbers but you do need some sort of estimation or framework that you can work within. There are plenty of other questions you can ask but the point is that you need to start understanding the value of customers; this will greatly help when it comes time to explain the ROI of your social media efforts (not to mention customer value is something you should know regardless of whether or not you’re using social media).
Do you know how much your customers are worth to you?
Tags: determining customer value, social media ROI, value of a customer
Jacob, a hearty Amen to this post. I’ll even go a step further. Jill Dyche, from Baseline consulting wrote a post a couple of weeks back on a hypothetical scenario. She said that if a marketer had the oppty to sponsor a social media project (and all that it entails) or a analytical infrastructure/data management project, that a marketer should choose the later. We need to know our customers better than we do, and we need to understand their value much better than we do. With an analytical infrastructure and accompanying data capture from transactions, this is entirely possible.
I wrote a MP article on this very topic, http://www.marketingprofs.com/8/preparing-for-future-cio-cmo-must-collaborate-barsch.asp
Thanks for the post!
Hi Paul,
thanks for the comment. it’s always funny to speak with companies who are looking to get involved in social media, they ask how they want to measure roi, i ask what the value of their customer is, they say they don’t know, and i end up shaking my head. social media isn’t to blame on this one!