How to measure social media

September 7, 2009 Business, Social media, Strategy Comments (2) 155

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.

David Harkins is a serial entrepreneur, which is a more professional way of saying he is still trying to figure out what he wants to be when he grows up.
When not working for himself, he has had a fulfilling career in marketing, advising both large and small companies including several in the Fortune 500 and many of America’s largest nonprofit organizations. In his spare time, he consults, speaks, writes, hikes, explores, and creates art. Although, not necessarily in that order. Connect with him on social media below:

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If innovation is a good idea, it’s worth doing poorly.

October 16, 2008 Innovation, Strategy Comments (0) 133

When I was the CMO of a software engineering firm at the end of the dot-com era, my boss would find a way to work, “If it’s a good idea, it’s worth doing poorly,” into every conversation.  When I got over the annoyance of it, I realized he was on to something.

“We can’t drive innovation through planning. It only comes in the doing.”

– Dave Harkins

This is the time of the year that most of us work on our budgets for the coming year.  Many of us are cutting back on marketing expenditures. Why?  We didn’t deliver because we used history as our guide. We didn’t keep up with the change around us and planned our marketing programs by looking through a historical lens.

Successful marketers today understand that we must keep our eyes open and our ears tuned-in to all that happens around us today. Yesterday is irrelevant in today’s culture.  We must be bold enough to take action on what little we know, or think we know and connect the seemingly unconnected patterns in daily living to find an opportunity for innovation.

As you think about next year’s marketing budget, open your eyes and ears to what’s happening in our world. You will undoubtedly see opportunities that you could never have planned in your wildest dreams. You can’t plan innovation. You can only live it.

Take risks. Big risks. If it seems like a good idea, do it. Even if you do it poorly. In fact, do whatever you’re trying to do poorly if it means you’ll get it done sooner rather than later. You can always improve upon it daily hourly.

What are you waiting for?

David Harkins is a serial entrepreneur, which is a more professional way of saying he is still trying to figure out what he wants to be when he grows up.
When not working for himself, he has had a fulfilling career in marketing, advising both large and small companies including several in the Fortune 500 and many of America’s largest nonprofit organizations. In his spare time, he consults, speaks, writes, hikes, explores, and creates art. Although, not necessarily in that order. Connect with him on social media below:

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WHITEPAPER: Customers are Channel Neutral

July 15, 2003 Strategy, Whitepaper Comments (0) 134

Originally written in 2003 as a prediction for what would come to be known as “Omni-Channel marketing” during my tenure at the Jackson Group.
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From 2003:

The term “multi-channel marketing” refers to the process of building a customer relationship across two or more marketing or sales channels.The channels are those that are interactive, such as face-to-face, telephone, email, Internet, or perhaps direct mail. These channels provide an organization the opportunity to develop and maintain the brand promise as the customer engages the organization at each point of contact.

Click the image to view or download.

David Harkins is a serial entrepreneur, which is a more professional way of saying he is still trying to figure out what he wants to be when he grows up.
When not working for himself, he has had a fulfilling career in marketing, advising both large and small companies including several in the Fortune 500 and many of America’s largest nonprofit organizations. In his spare time, he consults, speaks, writes, hikes, explores, and creates art. Although, not necessarily in that order. Connect with him on social media below:

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