Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr.

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Table of Contents
PART I: The Social Media Landscape Chapter 1: What Social Media Isnt Chapter 2: The Evolution of Marketing Chapter 3: How to Think About Social Media Chapter 4: The Language of Social Media PART II: How to Set Yourself Up for Social Media Success Chapter 5: Laying the Groundwork for Success Chapter 6: Why Your First Social Media Campaign Didnt Work Chapter 7: Managing the Conversation Chapter 8: Creating Circular Momentum PART III: Social Media Platforms Chapter 9: Social Media is More Than Just YouTube, LinkedIn, Facebook, and Twitter Chapter 10: How to Use Networking Platforms to Help You Grow Your Sales and Revenue Chapter 11: How to Use Promoting Platforms to Help You Grow Your Sales and Revenue Chapter 12: How to Use Sharing Platforms to Grow Your Sales and Revenue Chapter 13: Mobile Media, Augmented Reality, and Widgets, Oh My! PART IV: Social Media Integration Chapter 14: How to Integrate Social Media into Your Marketing Plan Chapter 15: How to Conduct a Competitive Assessment Chapter 16: Conducting an Internal Situation Analysis Chapter 17: Understanding the Customer Thought Processes Chapter 18: Establishing Your Major Objectives and Key Strategies Chapter 19: Aligning your Social Media Strategy with Your Brand Essence PART V: How to Measure Social Media Chapter 20: How to Measure a Social Media Campaign Chapter 21: Step 1: Measuring the Quantitative Data Chapter 22: Step 2: Measuring the Qualitative Data Chapter 23: Step 3: Measuring the Only Really Important ThingYour Return on Investment Chapter 24: Social Media Guidelines for Corporations Chapter 25: 59 Things You Need to Do on Your Way to a Successful Social Media Campaign

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Chapter 23: Measuring the Only Really Important Thing Your Return on Investment
Okay, so far, weve talked about where marketing has been and weve talked about where marketing is going. Now its time to talk about stuff thats important right now your return on investment (ROI). After all, the only real reason youre setting up, running and managing a social media campaign is to make money, right? Understanding Customer Lifetime Value Before we dive into ROI, lets re-visit something weve discussed previously Customer Lifetime Value (CLV). Thats the amount of revenue youll generate from one customer over the lifetime of your engagement with them minus your costs to acquire them and then service them over time. Lets say youre a cable TV provider and you know that the average customer spends $100 a month on your service. Over the course of 12 months, you generate $1,200 from the typical customer. But that customer doesnt stay with you for just 12 months, they stay with you for 3.5 years. The revenue you generate from them over the time that they remain your customer is is $4,200 ($100/month x 12 months x 3.5 years). Next you have to consider how much its going to cost you to service that customer each year for the time they remain your customer. Assume that each year, this amounts to $30 per month. The cost to service them over the span of time as your customer is $1,260 ($30/month x 12 months x 3.5 years).

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

To calculate a straight-forward Customer Lifetime Value (that doesnt take into consideration the cost required to retain an existing customer or the cost to win back a customer that has defected) you start with the revenue generated by that customer over the 3.5 years = $4,200 minus the cost to serve that customer over the 3.5 years = $2,940 ($4,200 - $1,260). The next step is to gure out how much money youd spend in order to acquire that customer. A gure a lot of Chief Marketing Ofcers (and Chief Financial Ofcers) are comfortable with is 10% of CLV. So, in the example of the cable company, you might spend close to $294 in marketing costs to gain a new customer. Thats considered your allowable Cost Per Acquisition (CPA), sometimes called Cost Per Sale (CPS). A lot of companies spend a good amount of time analyzing their CLV and their CPA. On the low end of the scale, you might have a software company that sells its software for $49. Their customers may only purchase their software once every 2 years and they may only re-purchase when theres a signicant upgrade. In this example, assume there is no recurring cost to service the customer once they have purchased from you. If thats the case, their CLV is just $49 (since they only re-purchase when theres a signicant upgrade), which leaves just $4.90 for their allowable CPA. On the other end of the spectrum might be a car company that, as an example, sells a model for $40,000. If the average customer buys 2.5 cars from the car company before switching brands and it costs the car company $500 per year to service this customer, that a CLV of $98,750 ($100,000 minus $1,250) and an allowable CPA of close to $10,000. Not bad. The bottom line is that there are a broad range of ways to calculate Customer Lifetime Value and Cost Per Acquisition. The examples mentioned above will get you going on a good, basic formula for understanding the metrics of your social media ROI.

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Using Social Media for Customer Retention Purposes A general rule of thumb for most businesses is that it costs 3 to 5 times as much to get a new customer as it does to keep an existing one. Thats part of the reason most corporations focus so much time and money on customer retention it pays to keep existing customers happy. Lets say youre The Home Depot and theres a Lowes right across the street from you. (This is not as unusual as you might think.) Given that, youd probably spend a great deal of money training your employees on everything they need to know about customer retention. After all, if it costs 3 to 5 times as much to acquire a new customer as it does to prevent an existing one from leaving, it would be smart to focus time and money on keeping the existing customer satised. Another great example of this is Comcast Cable. They have a number of formidable competitors, ranging from AT&T to DirecTV. You can rest assured that Comcast, AT&T and DirecTV know their CLV and their CPA. And you can also rest assured that they spend a great deal of money training their customer service representatives on how to keep and maintain their existing customers. Thats exactly what was crossing Frank Eliasons mind when he was taking a spin through Twitter one day and noticed that some of Comcasts existing customers were venting their frustrations about Comcast on Twitter. As a longstanding employee of Comcast, the odds were pretty good that Frank knew Comcasts Customer Lifetime Value and also understood how hard it is for any corporation to get new customers. So when Frank saw people venting their frustrations with Comcast on Twitter, it hit pretty close to home.
This is a photo of a duck. It has nothing to do with social media. In fact, its not even in the nal version of the book. But it is memorable, no?

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

The good news (for Frank, anyway) is that he knew that a lot of the customers issues could be handled remotely. For example, when a customer loses internet connection, the solution is often to turn the modem off then back on again. If half the people Tweeting their frustrations were Tweeting about their internet connection, Frank realized that he could x the problem via Twitter (e.g., Hey, @60SecondTweets if youre having problems with your connection, turn your modem off then back on again. If that doesnt work, call us at 1-800-COMCAST.) Lets say CLV for Comcast is the $2,940 as we mentioned in the previous example. (By the way, thats a guess, but its probably not far off.) The allowable CPA in that calculation came in at $294. If it costs 3 to 5 times as much to get a new customer as it does to keep an existing one, then Frank knows that every time he prevents someone from leaving Comcast to go to DirecTV, hes saving his company anywhere from $882 to $1,470 Now, before you run off to your CFO with these gures, there are a few things to note. First of all, we dont know for sure that the CLV for Comcast is $294. And the cost to get a new customer varies by industry, so the 3 to 5 times gure may be different for your company. Furthermore, not everyone who complains on Twitter about Comcast goes to a competitor. (In fact, only a small percentage do.) All that said, these metrics can give you an idea of how to create a model to calculate the ROI of one aspect of your social media program. Generating Leads with Social Media A lot of companies sell their products over the internet on e-commerce sites. It works for 1-800-Flowers, for iTunes and for OverStock.com very, very well. But what if you dont sell products online? What if youre Roto-Rooter or a car dealership or a Real Estate Agent? If thats the case, youre interested in generating leads.

The Big Idea

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

A lead is an inbound prospect who is interested in your product or service (or, as the case may be, in your competitors product or service). If you can capture a lead and nurture it through the sales funnel, youll be able to convert that prospect into a customer. And that means revenue for your company. The challenge many people face when they use social media to generate leads is that they dont go the nal mile. In other words, they use social media to build awareness and generate demand for their products or services, but they dont know how to take it the nal step and turn it into a viable lead. One of the best ways to use social media to generate leads is to become an information station for people in your target market. Thats what BKV Digital and Direct Response did with the 60 Second Marketer. As weve mentioned before, BKV is a marketing communications rm that develops highlymeasurable marketing programs for corporations like AT&T, Six Flags, the American Red Cross and Caterpillar. The idea for the 60 Second Marketer started with an analysis of BKVs target market, which is marketing directors working at large corporations throughout the world. If you get inside the mind of the typical marketing director at these corporations, youd nd someone who is 1) very busy, and 2) interested in staying abreast of the latest tools, tips and techniques in marketing. A rough analysis was that the typical marketing director will download 2 to 3 white papers a month about marketing, but only has time to read a couple of pages of those white papers. The rest get stacked up on their desk -- unread -and then get tossed in the trash about once every 3 months. But what if you could distill those white papers down to their essence? What if you could take the most important information and put it into a short, 60-second video that provided the key bits of information about the new tool, tip or technique to the marketing director?

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Thats exactly what was done with the 60 Second Marketer. It was set-up to be an information station for marketing directors and, in the process, to introduce them to BKV Digital and Direct Response. The leads captured through the 60 Second Marketer were nurtured along the sales funnel until they were converted into clients. The 60 Second Marketer uses a hub-and-spoke system to drive prospects to the website and to capture their attention. When prospects sign up for the eNewsletter, participate in a free webinar or attend a 60 Second Marketer event, they get subtle, long-term exposure to BKV. The result is an engaged and loyal prospect base, some of whom convert to customers. You can do the same with your social media campaign. In fact, as soon as youve nished with this chapter (and not a moment before), wed suggest that you sketch out a hub-andspoke of your own and use it as a way to analyze which social media tools youre going to use to capture lead data for your business. Converting Leads into Customers What should you do once youve captured the lead data for your customer prospects? Youll need to start re-marketing to them to close the loop. A lead is just a lead until you actively pursue it and convert it into a customer. This is where good, old-fashioned hard work comes into play. Theres this thing called a telephone. Your parents and grandparents used it to connect with prospects for their businesses. Theres also this thing called a sales letter. Ditto. Email is another good tool to convert prospects into customers. The only difference is that your grandparents (and, perhaps, your parents) didnt use it. The point is that a lead doesnt count for anything until you do the hard work to converted to a sale. Thats the nal mile. And its probably the hardest mile. But executing that last mile is what differentiates the social media wannabes from the social media super stars.

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Tracking Your Social Media ROI A few chapters ago, we mentioned that the only truly important social media metric is ROI. Everything else trafc, comments, followers, leads is just a stop along the way. In this chapter, weve covered a lot of very important concepts including CLV, CPA, lead generation and prospect conversion. If you understand those concepts, the rest is just a matter of tracking the data and using it to improve your results. Theres an old question that most people are familiar with if a tree falls in the woods and nobody is there, does it still make a sound? The same question holds true for social media if a social media campaign isnt measured, is it effective? The answer, of course, is no. A social media campaign that isnt measured isnt effective because theres no way to tell if it worked. The specics of measuring a social media campaign are going to vary with every company, but lets use a basic example to illustrate the approach. Lets say that youre a lawncare company and your typical customer spends $80 per month on your service and stays with you for 3 years. For the sake of keeping this illustration straightforward, lets also assume that you have no additional ongoing servicing costs while they are your customer. That gives you a CLV of $2,880 and an allowable CPA of $288. In the past, you might have used direct mail as your primary tool to generate leads and convert those leads into sales. If the conversion rate on your direct mail campaigns was 0.5%, youd have to send out 200 direct mail pieces to acquire a customer. If your
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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

printing, postage, list and marketing costs for those direct mail pieces was $1.44 each, then the math works out perfectly to $288. Youre golden. But lets say the CEO and the CFO decide to test a social media campaign against the existing direct mail campaign. Now the math gets kind of interesting. Lets assume that you spend $2.4 million each year to send out 2 million direct mail pieces that generate 10,000 new customers each year (2 million direct mail pieces x 0.5% = 10,000 new customers). If your annual revenue per customer is $960, thats $9.6 million in incremental revenue each year brought in by new customers. (Dont forget, you have some customer churn, so some of the $9.6 million replaces revenue from lost customers.) In any case, youll want to test your social media campaign against your control, which in this case is your direct mail campaign. If you spend $2.4 million each year on your direct mail campaign, a safe bet would be to spend 10% of that, or $240,000, on a test social media campaign. The costs associated with setting up, launching and running a social media campaign are often under-estimated. Since the paid media for social media is close to $0, people assume that social media is inexpensive. In other words, since there are no media costs for using Twitter, YouTube, Facebook, LinkedIn or other social media platforms, people often assume that running a social media campaign is cheap. But the manpower involved in running a social media campaign can be signicant. So can the costs for producing the content for your social media campaign. If youre a large company with a brand to protect, youll want to create top-notch landing pages on your website. That costs money. So do well-produced YouTube videos and effective Facebook promotions. The point is that youll need to take a deep dive into some of the hidden costs of social media in order to get a good, clear understanding of the ROI of your campaign. In this example, weve said youve got $240,000 to spend on labor and production costs. In

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

order for that $240,000 investment to match the ROI of the direct mail campaign, it would have to generate 1,000 new customers. Thats not as easy as it looks. But its also not impossible. One of your objectives would be to drive, say, 100,000 people to your landing pages via your social media campaign. Assuming you were able to do that, its reasonable to calculate that 1,000 of those would convert to customers, which would match your direct mail campaign dollar-for-dollar. From that point on, its simply a matter of testing ways to grow your inbound trafc and testing ways to improve your conversion rate. The Bottom Line The most important thing you can do in all of this is to track your campaign down to the level of prospect conversion. When youre tracking data at that level, youll be able to calculate your return on investment. And, assuming the ROI is positive, youll be able to grow your campaign and improve efciencies over time. And that, friends, translates into prots.

Key Learnings and Action Steps from this chapter: Key Learning: Customer Lifetime Value is the revenue youll generate from a typical customer of the lifetime of your engagement with them. Action Step: Calculate your Customer Lifetime Value using this simple formula: Monthly revenue x 12 months x average customer lifecycle = CLV.

Key Learning: Allowable Cost Per Acquisition is the amount of money you would spend to acquire a new customer. Action Step: Find out what your allowable CPA is by calculating 10% of your CLV.

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Sample Chapter from How to Make Money with Social Media by Jamie Turner and Dr. Reshma Shah

Key Learning: A lead or a prospect generates $0 for your company until theyre converted into a customer. Action Step: Embrace the idea that a social media campaign is useless unless you convert your leads and/or prospects into customers. Track your data down to the prospect conversion level in order to generate a clear sense of your actual ROI.

Author Bios: Jamie Turner is the Chief Content Ofcer at the 60 Second Marketer, the online magazine for BKV Digital and Direct Response. Jamie has helped companies like AT&T, CNN, Motorola, Cartoon Network and The Coca-Cola Company grow their sales and revenue with outside-the-box marketing techniques. He is a regular guest on TV and radio on the subject of marketing and social media and is an in-demand keynote speaker at corporations, events and trade shows around the globe.

Dr. Reshma Shah is an Assistant Professor in the area of Marketing at the Goizueta Business School of Emory University. She is also a founder and partner at Inexion Point Marketing Group. Dr. Shahs marketing insights and strategies have helped companies like Ciba Vision, GE, IBM, Turner, The Coca-Cola Company and UPS, among others, improve their marketing ROI. Dr. Shahs articles have appeared in several academic journals in the area of marketing alliances and brand extensions. Dr. Shah is also the recipient of the Distinguished Educator Award at Emory University. Order your copy right now on Amazon.com or BarnesAndNoble.com.