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How To Measure The Return On Investment For Social Media In Marketing

By Jane van Velsen in Featured

“ROI on Social Media? What bloody ROI?”

It’s only the first week of January 2012 and already I’m hearing the same refrain as 2011! “How do we calculate the ROI on social media in marketing?”

When you begin using social media in your marketing strategy or as a stand alone campaign, it is hard to determine how those numbers of followers and ‘likers’ stack up against delivery of a return on investment.

We have clients who ask us this regularly so here’s some clarity for you.

Measuring social media ROI is very difficult for a few reasons. The first is that it is very hard to use social media trackers for individual sales and the second is that social media is not a direct sales channel, it’s a relationship marketing tool.

Although difficult it can be done using a combination of direct marketing stratagems like offer codes linked to specific landing pages in your ‘hub’ (a blog or website to run all your social media activity through.)

This, however comes after you have built an audience or community to ‘market’ to. It’s no good running a specific offer or promotion until you have a loyal following and that takes a while.

For any social media agency to offer ROI they will need parameters which you all agree at the outset eg: a % increase in audience month on month.

You may also assign other parameters like: percentage traffic driven to a specific landing page.

Monitor online visibility by looking at the number of mentions (share) of your brand and links to your site using tools like SocialMention. Put Google Analytics on your ‘hub’ and measure traffic source. Use social media monitors like KLOUT to determine your brands popularity via social media. Check your Facebook insights to see ‘share’ figures and ‘post views’ When you have an audience or community worth marketing to, remember to apply the same rules you would in traditional marketing: have a strategy – Determine content – Reward loyalty – Engage regularly and relevantly.

Track your results and learn from them. For a social media consultant or agency to do this for you they need to have a relationship with your website/blogsite manager and designer or full access to the site, access to all your online profiles, a copy of your marketing strategy and a ‘point’ person to get material from eg: videos, photos, posts, tips. In fact your social media agency becomes part of your marketing department.

If you’re choosing a social media agency, look for one that has its roots in marketing and advertising and understands that synergy. They also need to understand search engine optimization.

Running individual campaigns within social media is easier to measure in terms of ROI. For example.

Let’s say you have 40 000 Facebook ‘fans’ on your business page and 25,000 on your Twitter Profile. You have an email database of 12,000. You want to tell them all about a special offer you’re running to buy XX at a discount of 20% and you want to record the click-throughs and the take-up of the offer.

The first thing you do is build a landing page on your ‘hub’. Why? It’s the only way to track results.

Your ‘hub’ should have analytics on it so that page can be monitored in terms of where the traffic is coming from and whether or not a sale is made or a visitor is sent on to a purchase page.

You can assign a ‘special offer’ code to your ‘tweet’, ‘post’ or ‘update’ that is specific to that tool, a time limit, an offer. You can also add a link that takes the recipient to that landing page. It may be that you only use one social media tool per campaign but remember to measure apples with apples!

The difference is this is a specific social media driven offer campaign not a generic visibility campaign.

We think it is this lack of understanding that causes a lot of problems when clients think about proving ROI in sales terms.

In terms of generic social media in marketing to build an audience, you can use recent research that tells you that increased online visibility through engagement on social media tools like Twitter, Facebook and bookmarks will give you increased sales.

Bain and Company recently declared that “Customers who engage with companies over social media are more loyal and they spend up to 40 percent more with those companies than other customers” in their study “Putting Social Media to Work.”

Wendy Clark is the senior vice president of integrated marketing communications and capabilities at Coca-Cola Inc. where she stated that an independent group verified that Coca-Cola fans on Facebook (36 million +) were twice as likely to consume coke and 10 times more likely to purchase.

I’d like to know that about my audience. Wouldn’t you?

James Caan of Dragon’s Den fame looks at it purely from a financial gain point of view.

This is why we use social media for our clients.

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Jane van Velsen is the founder of the Social Media Shop Ltd. Jane still uses the principles of direct marketing and relationship marketing that she was taught at O&M Direct over 16 years ago. This social media agency offers online training through video tutorials, full service social media management and set up as well as full day workshops.

12 Methods to Improve Website Return on Investment (ROI) Using SEO and Other Strategies

By Nashat Mostafa in Featured

Return On Investment (ROI) is the relationship between the total amount you spend and the total amount you earn from a certain internet marketing campaign.

If you are doing any online marketing campaign, then Return On Investment (ROI) is the most important measurement to estimate your success and the one metric that you must work hard on to improve over time.

Generally speaking, Return On Investment (ROI) is a performance measurement used to evaluate the efficiency of an investment and to compare the efficiency of one investment to the other or over a certain period of time.

Return on investment is a very popular metric due to its versatility and simplicity. That is, if an investment does not have a reasonable positive ROI, or if there are other opportunities with a higher ROI, then this investment should not be done. Return On Investment (ROI) is the final measurement of success for any advertising campaign.

Track And Measure Your Advertising, Customer Acquisition Costs, And The Lifetime Value Of A Customer

By Hunter Waterhouse in Featured

As business owners and managers, we need to look at a variety of numbers to gain a better understanding of our businesses. In this article, we are going to consider two very important metrics in business marketing – Cost Of Customer Acquisition and Advertising ROI (Return On Investment).

One of the most important numbers we need to always be mindful of is the “Cost of a New Customer” or “Cost of Customer Acquisition”.

Understanding Customer Acquisition Costs

If you are unfamiliar with this concept, let me give you a quick tutorial on this advertising metric.

Suppose you run an advertisement in your local newspaper for your furniture store. Suppose for the sake of this example that you paid $1000 for your display ad in the newspaper.

Now, suppose your advertising brought 4 new customers into your store, who bought from you. Suppose also that the average spend for each customer was $1500.

With the example I am drawing, your $1000 display advertisement in the newspaper brought in 4 customers who spent a total of $6000 in your store.

I am going to keep this example simple, so that more people can keep up with the numbers.

On the basic premise of our example, you generated 4 customers after an outlay of $1000 in advertising. So your basic Cost Of Customer Acquisition was $250 per customer.

If your business received fewer customers, from your outlay of $1000 in advertising, then your Cost Of Customer Acquisition is more expensive.

But, if your business earned more customers who spent money, then your Cost Of Customer Acquisition would be much smaller.

In its simplest form, the Cost Of Customer Acquisition is the money spent to get the customer to your store divided by the number of new customers acquired. We will look at this in more detail, later in this article.

The Best Way To Measure Sales And Marketing Performance

Entrepreneur Magazine in a 1999 article reflected on the Cost Of Customer Acquisition in the dot com world. The article suggested, “the cost of new customer acquisition is one of the best ways to measure sales and marketing performance.”

In 1999, the Cost Of Customer Acquisition for the following companies were:

• BarnesAndNoble.com – $42
• Amazon.com – $27.60
• Priceline – $32.30
• Beyond.com – $29.30

On the surface, these numbers may seem small. But, Amazon’s Average Sale is in the $17-range! This makes the challenge that Amazon and other major retailers face fairly transparent. If these retailers could only count on one purchase from the newly acquired customer, then these businesses would be losing money by the truckload.

Fortunately, Amazon continues to perform well in Repeat Business from a single customer. The following calculations reflect additional numbers that we business people should also factor into our Cost Of Acquisition metrics.

The Real Value Of A Customer

Amazon’s first-sale may only be $17, but in 1999, Amazon’s Average Sales Per Customer was $116, up $10 from the previous year. Unfortunately, Amazon isn’t very forthcoming with these numbers, so after two hours research, I was unable to come up with more up-to-date numbers for you to consider.

The point of mentioning this is that it is important for business owners and managers to recognize that the Value Of A Customer is not how much sales revenue is derived from the initial purchase, but more importantly, from the Lifetime Value Of A Customer.

If we looked at Amazon’s Cost Of Customer Acquisition only in terms of that first sale, then they will be losing money hand-over-fist. With a Cost Of Acquisition of $27.60 and the first sale of $17, Amazon could not stay in business long if they were continuously producing numbers at that level. However, once you factor in the Lifetime Value Of A Customer, then Amazon is spending $27.60 to acquire a customer that is worth $116 in sales for them. Therefore, by measuring the Lifetime Value of a Customer, Amazon is spending only 24% of their revenue in order to acquire one customer.

Few businesses invest 24% of their revenue in advertising, but Amazon hopes that the Lifetime Value of a Customer will eventually exceed the $116 value, known to have existed in FY2000.

As the Lifetime Value of a Customer increases, the overall Cost of Customer Acquisition will fall, as an overall percentage value of Cost Of Acquisition divided by the Lifetime Value of the customer.

The Compounding Lifetime Value Of A Customer

If you have a hair-cutting salon and your advertising budget for one month is $1000, and you get 30 new customers through the door, who will spend an average of $20 for a hair cut, then your basic Cost of Customer Acquisition is roughly $33.34 to gain $20 in new sales.

But if only half of your 30 new customers become regular clients, then you can anticipate 15 of those customers coming to your hair salon at least once a month for the remainder of the year. Therefore, the first 15 customers will be worth $20 each, and the next 15 customers will be worth $240 each over the course of one year ($20 x 12 months). All told, your first 15 customers will put $300 in your cash register, and the next 15 customers will put another $3600 in your cash register.

Thus, in the hair salon example, your $1000 in advertising could generate new customers that will generate $3900 in new sales. Once you start to consider the Lifetime Value of a Customer, within the Cost of Customer Acquisition, then you will realize that the Cost of Customer Acquisition – although it might be higher than the initial sale – holds out the possibility and promise reducing itself as the Lifetime Value of a Customer increases over time.

As the end of the year winds down, you will be able to see that a $1000 expenditure was turned into $3900 in new revenue. In essence, for every dollar you spent on advertising that month, your return value was $3.90 over the course of one year.

In the second year, if only half of the original 15 regular customers or roughly 8 people stay with you for the full course of the second year, then the $1920 in revenue (8 people X $20 each X 12 months) you can expect from those customers could almost be considered free money. Of course, you will still have service fulfillment costs, but that second year will give you nearly $2000 in revenue that you will not have to chase.

Even if half of the customers drop off during the following calendar years, then a 50% customer attrition rate will allow you to have customers that could stay with you up to five years. Calculated against a 50% decrease in customers over each calendar year, your $1000 investment in advertising may translate into $7500 in revenues over five years ($3900 + $1920 + $960 + $480 + $240 = $7500), from the initial investment of $1000 in advertising.

The interesting thing about this scenario is that it is based on an advertising budget of $1000 ONE TIME. But, most businesses will continue the advertising process every month in every year. Therefore, the above example could compound month-after-month. Every month should bring the same or similar results to your business for the month and year.

Advertising Is A Process, Not An Event

Many small business owners have a dire misunderstanding of the nature of advertising and the value to be received from the advertising.

When business owners or managers fail to track and measure the new business generated from the advertising, then the business owners and managers will fail to see that advertising is an expense that can return huge dividends to the business.

When businesses fail to track and measure advertising successes, people tend to only see the money leaving the business without every seeing the reward coming back into the business. As a result, many business managers will employ advertising for a short time, then cancel the advertising, under the false belief that the advertising was not returning value to the business.

When businesses fail to understand the Lifetime Value Of A Customer, it is hard to appreciate any advertising method that fails to pay for itself in its first cycle. If Amazon was to only look at the initial sale generated by a new customer, they would quickly cancel all of their advertising efforts. Fortunately for Amazon, its management understands that the initial $17 sale is not the measure to use to determine the value of Amazon’s advertising efforts. Amazon’s management understands that the true Cost of Customer Acquisition should not be measured by the initial sale, but by the Lifetime Value of a Customer. In doing so, Amazon has ensured that it will continue to be one of the largest and most successful retail outlets on the planet.

When business managers fail to understand the Lifetime Value of a Customer, it is hard for them to appreciate and understand the compounding nature of the revenue stream for a business. It is hard for them to understand that money invested into advertising today, can deliver huge rewards over the next several years.

A Wake Up Call For Small Business Owners

According to Scott Shane, author of “Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By“, only 29-in-100 businesses will remain in business after ten years. That means that a full 71% of businesses started in any calendar year will be out of business in only ten years.

It is sad to say, but the reason most businesses fail is that business owners and managers fail to understand the nature of advertising, the importance of tracking and measuring advertising results, the Lifetime Value of a Customer, and the compounding nature of the revenue stream.

I don’t want to see your business on the trash heap of yesteryear. So, it is my hope that you will take this article as a wake-up call, as to the importance of advertising and its potential to lift your business into profits.

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Hunter Waterhouse has been helping business owners advertise their businesses online for nearly a decade. He is ready, willing, and able to put his experience to work for Main Street Businesses that seek to generate walk-in traffic to their stores, from the online exposure of their business. To learn more about how Hunter can help advertise your local business, visit: http://onlinemarketinglocal.com/

Improved Website Sales Conversion Is The Best Answer

By Bret Plummer in Featured

When I first started learning how to make money online, I read that “content is king.” Well, I am here to tell you that “content is not king.” It is an illusion (a mirage) that traps many online business owners in the quick sand of failure.

“Content for the sake of content” is pointless.

Now, don’t get me wrong here. Content is a good thing, so long as it will help deliver a potential customer to your sales page or the sales page of your advertisers. Any content that does not deliver a potential customer to a sales page is content that has not lived up to its true purpose, plain and simple.

© Copyright 2012 All rights reserved. Jayde Online, Inc.

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