Social Media Marketing ROI in CRM: CPA, CLV and Customer Advocacy

In the series of articles on the ROI of Social Media Marketing I have addressed the impact of certain actions on results, as well as possible variables for measuring and monitoring them. We have looked at the degree of influence on search engine positioning, on brand building, on Online Reputation, and so on. In my view—and I hope that those who disagree with me will say so in their comments—given the limited material available on metrics related to the Internet as we currently understand it, and indeed to any intangible asset, it is easy to speculate, while a lack of knowledge leads to evangelising without emphasising, in talks and conferences, the need to achieve a Return on Investment. As a result, it is common to overlook long-established considerations. In the absence of material, the logical approach is to return to the metrics we use, or at least those we should keep in mind. Ultimately, a company is worth what its Customers are worth, and in a world built on customer relationships, if we want to measure those relationships based on our actions, we must assess the true value of our customers. If we wanted to calculate Customer Value, we would use a formula such as: I am referring, of course, to CPA (Cost per Acquisition) and CLV (Customer Lifetime Value). In other words, how much revenue we generate from each customer throughout our business relationship, and how much it costs us to acquire each of those customers. As its name suggests, CPA is the cost we incur to acquire a new customer. When considering Social Media Marketing, since it is a global environment in which current customers, as a result of our more traditional commercial actions, ALREADY participate in Social Networks, Blogs or other Forums, it would not be fair to assess the costs associated with our 2.0 strategy independently; rather, I believe they should be analysed as a whole. Many start-up companies, as well as many strategies implemented by already established businesses, fail because of an imbalance between the sales revenue generated by customers and the cost of acquiring them. A company starting out must invest substantial sums in promotion to raise awareness and generate its first sales. If what it earns from sales in the short term is less than what it spends, the outcome will be poor. Of course, marketing and advertising costs will decrease over time as the company gains recognition, and the company’s survival will depend largely on two things:

• Maximising the ROI of its marketing actions through sound strategic planning, and encouraging customers to consume more—although that is easier said than done.
• The company’s financial capacity to continue investing resources even without a return, knowing that over time the trend is towards generating one.

How many new customers do we acquire each month? 3, 5, 20… Take note: Customers, not Guests. If our costs for Marketing, Adwords Advertising, Web Application Maintenance, Social Media Management, etc. amount, for example, to €10,000 per month, and we are able to acquire 5 customers through them, our CPA is €2,000. If, on average, a customer makes 30 stays at €200 at our property over the course of our relationship, generating €6,000 in revenue, the customer value will be €4,000. However, not all customers are the same. There may be highly repeat customers with a high acquisition cost, meaning that they may not be profitable or may be of little value. Developing Social Media Marketing actions can add an additional metric based on the customer’s ability to influence others. I discussed this previously in an article on Customer Social Value. So how does Social Media Marketing influence this? Fundamentally, the customer’s ability to influence others, which works virally at a relatively low cost, generates a highly significant media effect. Ultimately, our Acquisition Costs will decrease over time, based on the results of a successful Marketing 2.0 campaign. I believe this is the best—if not the only—metric by which the effectiveness of Social Media Marketing can be measured. The important thing, I believe, is to see it as part of a whole, with a very positive impact on any of the actions developed in our Marketing Plan