By michaelpace on November 20, 2013
My friends and family think I am a bit “Grinchy” when it comes to the holidays. I say “Bah Humbug” to that. Today, I give you the best present I can possibly give someone working with social media tools and their senior management who want to understand if they are providing actual business value – The How to Measure Your Social Media ROI “guide”.
A few notes to start:
- I don’t believe Engagement is a metric – it is a combination of metrics that may or may not tie back to an actual business goal. I’m not a big fan of using squishy metrics and buzz words.
- This methodology does not show or provide you the value of using social tools within your business. It may, but was not specifically designed to do so. However, there is plenty of juice here.
- There are a ton of non-quantifiable benefits of using social network tools for your business; it will still be up to you to show the value of those benefits. Story-telling does work well here.
- Quantifiable numbers, in context, make the basis for a fantastic story to tell. Your need to create the storyline, tone, and its beginning, middle, and end. Also, remember, story-telling is just another way to influence others.
- If you don’t know the value of other more important or relevant business activities, such as your retention efforts or acquisition, STOP HERE and go figure that stuff out first.
- Making progress on Learning Agendas is more important that ROI. Learning Agenda items may include things such as: content management, scale, hiring/development, infrastructure needs.
- Lastly, and maybe most importantly – If you cannot link social profiles to your customer database, you will never actually answer the question of ROI.
Ok, now you may unwrap your gift.
Part 1: As just previously mentioned, it is imperative you can link your customers’ social profiles to a customer database. To gather a somewhat accurate ROI, you need to be able to identify which of your customers are active on social media. If you then can link them back to a customer database, you can then index or compare them against your non-social customer data set. From there you will be able to see how they perform on the metrics below.
I realize in many industries and companies, you may not sell directly to the consumer (think home products, Coca Cola, trash bags, bacon, Smuckers, etc…), but you can still use the following information to develop your ROI.
Part 2: I am going to assume you are in business to acquire customers, retain customers, grow their usage, and do it profitably (if you are a for-profit company). All of the other stuff is how you get there. Traditional business models have brainwashed the simplicity out of getting actual results done. In other words, if you keep focusing on the pine needles, you are going to miss the forest.
Whether they admit it outright, most marketers are focused on acquiring customers. “Likes” and “Shares” are pine needles, they need to lead to something bigger. Context and content would be the trees in this metaphor. Social media used well can be an incredibly effective way in acquiring customers; I love the concept of Inbound Marketing made popular by folks like Hubspot. The four metrics I find most beneficial to look at are:
- Marketing Qualified Leads
- Sales Qualified Leads
- Cost per Acquisition
Some may feel “Likes” and “Shares” should be considered MQL’s or SQL’s, and I do too if, and only if, you are able to reconnect beyond just possibly being visible in Facebook (or other stream). I feel more strongly that content that leads to action (like email capture) is worth considerably more. If you context and content creation are strong, you should also be able to lower your paid search costs.
Everyone who works in social knows that content shared by a connection is more trusted than a commercial or direct mailer. The trick is now to track that referral. Isn’t that a big reason why we collect NPS (Net Promoter Score), to see if you would refer a family member, friend, or colleague? If social media is about connections and relationships, the referral is the ultimate, tangible result.
Of course, the easier you collect MQL’s, SQL’s, and referrals you lower one of your most important acquisition metrics – Cost of Acquisition. I’m not sure why cost of acquisition doesn’t get the attention it deserves, but all profitability starts with how much it costs to gain a customer. Lowering your cost of acquisition impacts how you look at retention, average usage, and general customer profitability.
While studies may vary, it is widely known that acquiring a customer is between 5-8 times more costly than to retain a current customer. In really simple terms, if it cost you $100 to acquire a customer, every customer you retain saves you between $80-$87.50. I love how David Skok illustrates this in the SaaS world with his article “Why Churn is SO critical to success in SaaS”.
During my tenure, at fast growing SaaS company, we saw customers, who were active in our community and social network platforms, attrite at half the rate of non-engaged customers. If you had no other metrics to prove the value of your social program, this one will typically turn a CEO on their head. Also, if your company employs a customer success program, you will want to see where and when social fits in.
Average Usage or Average Revenue per User
When I have consulted and spoken at conferences, I will usually refer to education and coaching as social’s best driver of average usage or average revenue per user (ARPU). Gaining more revenue from your customer is a no brainer, but how you do it is critical. Social networks, in tandem with strong context and content, are an incredible way to showcase how your product or service can better the lives of your customers. I highlight “better the lives” because there is a very real distinction between education/coaching and the cross sell. Cross selling for the sake of revenue will increase attrition rates eventually. You would need a very considerable amount of ARPU to overcome loss of customers. Education and coaching help your customer accomplish their goals. They chose your product or service for a reason, help them get the most out of it. Again another great illustration on the financial impact of increased ARPU or what David Skok refers to as Negative Churn.
Obviously, all of the metrics above can increase or decrease profitability depending on how well you execute on the initiatives and programs that drive those results. When I say profitability, I am specifically talking about how much does it cost you to serve your customer. Social networks, specifically community platforms, can serve your customers at far less expensive cost than your traditional networks like phone and email. Again, during my tenure with the SaaS company, we saw handling issues over Twitter costing about 1/6th the cost of a phone call.
Community platforms (such as Jive and Lithium) can deliver even better results, much better. A strong community manager can support tens of thousands of customers helping customers. Community platforms that have an easy to use search functionality are especially effective in lower your cost per customer.
Part 3: Now it is time to calculate, yay for math. I’d advise pulling in someone from your Finance or Analysis team to assist, specifically on how to best influence and showcase your data. However, if you need some assistance on calculators, here are a few helpful sites:
This may be my longest post ever; now you definitely cannot say that I didn’t give you anything for Chrismahanukwanzakah. Happy Holidays.