How to measure social media
There is much talk in marketing circles about how to measure the impact of social media. Some measurements are hard, such as actual campaign response and conversion rate measures. Others are a bit softer, such as measuring campaign reaction frequency and tone (e.g., positive, neutral, negative). While both are valid measures, I do think we have been missing a broader, yet critical component of our measures—the overall financial impact of word-of-mouth (WOM) spread.
It occurred to me today that I may already have a way to measure WOM influence and the impact of social media.
Years ago, I came up with a simple equation to measure what I called, the “Residual Value of a Customer.” In other words, this is a calculation to determine value of an average customers’ impact on your business relative to their individual influence on other customers. Keep in mind that this was before the internet and social media tools, so the sphere of influence of an individual customer was generally much less—maybe 7-10 people total. However, I think the logic still applies today.
The Residual Value of a Customer takes into account the annual sales to a customer, the expected tenure as a customer, and the estimated number of people influenced. For example, if “Customer A” spends $150 a year with a company and the average tenure is three years, then “Customer A’s” value to the organization is $450. However, if “Customer A” recommends the product/service to just one other customer who follows the same spending/tenure patterns (as the average), “Customer A” now has a residual value of $1,350.
Let’s take this thinking a step further. Recent research has suggested that the average Facebook user, for example, has 120 friends. The average user may interact meaningfully with between 10 and 20 Facebook Friends within a 30-day period. Using the calculations above, let’s say “Customer A” influences 20 friends within a 30-day period. “Customer A” now has a residual value of $27,000, as do each of those 20 friends who adhere to the average customer measures. In this first circle or ripple of influence the residual value of these 21 customers is now more than one-half million dollars over the next three years, assuming the averages spending and purchasing life remains consistent.
These are significant numbers, and all brought about by one customer sharing experiences with a circle of friends.
I have used this model a number of times to demonstrate the power of WOM marketing programs to senior management. It is simple to understand, and proven using average customer sales and tenure numbers. In the majority of the cases, I’ve been successful in gaining support from senior management for at least testing WOM or now, social media, programs. I have also used the Residual Value of a Customer to demonstrate the opportunity cost for not engaging in WOM.
In the spirit of sharing, I’ve created an online version of the model for you to use here: Residual Value of a Customer Calculator. Feel free to use this model and share with others.
I’d appreciate your feedback.
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Social Media: This, too, will change.
I have always been an early adopter of technology. I like change and I get a bit of an adrenaline rush working with and figuring out new tools and toys. Unfortunately, there are a good number of my friends and family who do not understand some of the newer social media enablers. Twitter cannot be explained to most of them and some flat-out refuse to use Facebook. Others, I am sad to say, carry a cell phone, but cannot manage to “Text.” These are the same people who could not believe I would carry a BlackBerry® and answer emails after working hours, yet they now do the same. Times, and people, do change.
The use of these electronic tools for conversation isn’t as really the time-waster they insist it is. Frankly, I prefer to think of these tools as “time-enablers” instead of a “time-wasters.” Having a BlackBerry®, for example, allows me to take my work with me wherever I go. Whether it’s soccer games, band or chorus concerts, or business trips, I can easily bridge the time between work, play and life most of the time. This means I probably work more hours than the average person does, but I work differently. I like the freedom. After all, it’s all “life,” isn’t it?
Facebook allows me to keep up with my kids and friends while traveling on business or otherwise away from the PC. Twitter opens the doors to ideas and conversations that I would never have if I only talked to the people in my every-day business dealings. For those of us with intense curiosity and a burning desire to continue to learn new things, Twitter is the source of unbelievable amounts of useful information, shared by people with similar passions—even for a skimmer of tweets like me.
In a 2003 blog entry, “The trouble with cell phones,” I shared that my friend Roger might have been on to something when he suggested, “…cell phones have replaced cigarettes as a nervous habit. People pull out their cell phones, call others when they feel bored or need to kill 5 minutes or so, and didn’t plan ahead with some reading material.” Today, this has been replaced with texting, email, Facebook and Twitter. Tomorrow, it will be something else. As someone commented recently, given the choice people would rather be doing something than doing nothing. Mobile technologies allow us to do something all of the time—productive or not.
Technology has obviously evolved since 2003 when cell phones were the primary source of mobile conversations. While we still use cell phones, we use them differently. We talk little and text often. Technology and our use of will constantly evolve and morph into the next generation of tools. Think about it: the “shared applications,” mainframe-thinking of the 70’s evolved into tools like Google Apps and cloud computing discussions; AOL’s IM chat communities of the 90’s and classmates.com have evolved into today’s Facebook; and ASP program models of the 2000’s have evolved into the Software as a Service (SaaS) program models of today. The technology changed, sure. But, it was the users of the technology who drove those changes.
Knowing all of these things, it’s hard for me to imagine that a few short years from now what we call “Social Media” and the technology that supports it, will not have undergone a major transformation for the better. It will do so because of the users. Users of these tools already desire a more streamlined ways to improve communications with others. I have to believe that users will demand better integration of these tools to make their lives easier through increased mobility. This will allow the conversations to continue and the relationships to build all day, every day. Will this mean stronger, better relationships? Maybe. Only time will tell.
I am certain of two things, though. One: Everything about technology and social media interaction will continue to evolve. For those of us who are early adopters, we gain great insights into how that evolution may occur. Two: My friends, who don’t understand Twitter today, won’t understand the next step in the evolution either. Unfortunately, they will find themselves farther and farther behind; not just with technology, but also in their social interactions with others as many of their friends more readily adopt the changing way we communicate as a culture.
By know, we all should realize that, “this, too, will change.” Technology evolves. Communication methods evolve. Yet, people do not really evolve as much as they adapt. Either they drive such change by adopting, engaging, and sharing or they simply adapt to such change reluctantly in fear of being passed by.
Which will you do?
Thanks to @heathervescent with whom I had a Twitter conversation about emerging technology, which was the spark for this blog post.
BlackBerry® is a registered trademark of Research In Motion Limited.
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Finding the edges
There’s a lot of disruption in the world.
I read today that more than 200,000 job cuts have been announced this month. Most announcements have been by big companies; we never hear about the smaller firms. In fact, many businesses have likely closed all together. We will not hear about those for a while.
These stories remind me of economic climate around the time of the dot-com bust. There was a lot of disruption then, too, but it led to great thinking and innovation in technology and in other sectors.
For those of us in the technology sector then, it was difficult time. Yet, those experiences changed technology. That disruption forced us out of our comfort zone and to the edges of our businesses where we discovered new opportunities to serve untapped markets. In some cases, we created markets where none had previously existed. We found things we never dreamt about or thought possible before someone “dropped the bomb,” forced us out, and made us look back on what had happened.
Without the dot-com disruption, we likely would not know about MP3 players, iPhones, social networks, blogs, or Twitter. Thanks to that disruption, technology makes it easier for us to keep in-touch, check our bank accounts from our mobile phones, and carry thousands of songs in our pocket.
I believe we need disruption in our lives, our businesses, and our worlds. We need to be forced outside of our comfort zone. We need to get to the edges, pull out the binoculars, and look at things a little differently. Like it or not, we need disruption to facilitate change and force us to the next level–whatever that may hold for us.
The good news is, we don’t have to wait for disruption from an external source. Scary as it may be we can create it ourselves; and, we probably should in this economy. Finding and getting to the edges may well be the only way our businesses will survive.
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Change begins with you
“Be the change
you wish to see in the world.”
- Mahatma Gandhi
America didn’t change today.
There is a new person in The White House, but most everything else is the same. The economy still struggles. The stock market continues to decline. Most people out of work today will still be out of work tomorrow. Some people lost their homes today while others struggled to put food on their tables.
Today’s problems will still be here tomorrow. The hard reality for each of us is that change doesn’t begin in Washington. Change begins with us.
Sometimes in our businesses and our lives we’re afraid to make important decisions that are necessary to take us to the next level of success. We say we’re “risk adverse,” when in reality we’re probably just afraid we’ll make the wrong decision and fail.
So what. Failure is nothing more than change–not good or bad in most cases, just a different outcome than we might have wanted.
It is our fear of change, not failure, which stands in the way of our successes.
Accept change. Gather your courage and embrace it in your life and in your business. Because when you are ready to embrace change, you will be ready to make change. And that will make all the difference in your business and your life.
No, America didn’t change today. The expectations of many Americans changed.
Did yours?
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