The social media ROI KPI you cannot forget

Do you know that there is a key indicator for Social Media ROI you should always have in mind? Do you want to learn how to calculate the value you obtain from your clients from social networks?

As I explain here about the theory of the value chain, all roles in the company must contribute to increase the value added of the organization and, more importantly, the perceived value to the customer. As long as the customer perceives more value in your product or service, the greater the likelihood that buys from you, that when he buys he will remain your client, and that he is willing to pay the price.

So if you understand that social media is a powerful tool to increase the value of your brand and a channel to improve profitability, you have no excuse to stop reading this.

ROI is a financial concept that measures the net benefits to a company, project or campaign generated compared with the costs that have been invested. That is, you must not only take into account the costs of your business, but also the benefits. And this is where our key indicator comes into play.

All your activities, not only in social media, should focus on conversions. Conversion is the process through which users or consumers from your target market become aware of the existence of your brand until they continue or end their relationship with it; remember the AIDA model. This model is known as the sales funnel, where the aim is sales and subsequent actions, such as the defense of the brand (Advocacy) that certain users do on social networks, or the generation of content (UGC, User Generated Content).

And at this stage is when our key indicator comes into play, being this key indicator the Customer Lifetime Value (CLV). The client, after making the first purchase until he leaves us, makes a series of repeated purchases. CLV is a concept that every financial department and every sales manager should be calculating, and know that it represents the income that a client will provide the company during his whole cycle.

How to calculate the CLV

Although the calculation of CLV can be quite complicated for the information you need, having to use financial formulas, and making certain decisions, you can actually calculate it in a simple way if your sales process is not so complicated and your customer cycle is not so long.

CLV = ARPU x ACL

• ARPU (Average Revenue Per User) is the average revenue per user, which can easily calculate by dividing net sales by total customers or users. Actually, it would be much more convenient to use the AMPU (Average Margin Per User), but I understand that to obtain this information can be sometimes more complicated.
• ACL (Average Customer Lifetime) is the average life of the customer, and represents the average time that a customer is one. As you know, customers come and go, and after a first purchase is not going to repeat all or repeat all that they will do so indefinitely. This is an indicator that is linked to customer loyalty, and you can calculate it as 100/CR, where CR (Churn Rate) is the percentage of customers who each time period (month, week, day) cancel their contract.

You can also do this calculation by using our free Android app.

Social Media and CLV

Well, you have learned how you can start measuring the ROI from an important part of your social media activities; if you are able to measure the number of new customers that you have obtained through Social Media, multiplying this figure by the CLV you will get the value gained from social sales.

And there’s more: since one of the benefits of social media is to use the social channel as a loyalty tool, if you achieve this objective, it will be reducing the CR (alternatively, increasing the retention rate), which will be increasing the ACL and … voilà!, improving the CLV.

Have you ever tried to measure it? Did you know that you could measure it so easily?

* A version of this post was published first on Socialancer.com, 22nd August 2013. Original in Spanish.