ROI of Social Customer Service: How to Calculate It and Create a Strong Business Case

The phrase “customer service is the new marketing” has gained popularity with brands realizing that poor customer service takes current, and even potential customers, out of the marketing funnel. Why? If a customer doesn’t get the help she needs, she often will not remain loyal – or worse, she will take to social media and tarnish the brand. Think about it. If a consumer’s flight gets delayed or she receives terrible food brought to the table, she might post on Twitter, Facebook, Instagram, Snapchat, and Yelp within minutes of the incident. From one mistake, a company’s reputation can be smeared all over the internet. The report goes into a lot of detail so it’s clear how to calculate the ROI of social customer service:

Economic Imperative of The ROI of Social Customer Service

Many brands have experienced incidents where not taking care of an issue turned into a social media nightmare. These include brands like Domino’s Pizza[i], the Red Cross[ii], McDonald’s[iii], and Cisco and extends to people’s personal brands such as comedian Gilbert Gottfried[iv] and hockey player Tyler Sequin.[v]

Customer care extends far beyond the traditional call center. Every touch point or interaction with the company (or even content about the company) can affect the customer’s satisfaction and loyalty to the brand. While it’s not always a positive experience, brands need to hear opinions expressed online to enable them to create the necessary corrections, drive strategy, and improve operations for making great customer experiences.

To gain buy-in for this type of interaction in a social customer service program, executives need to show senior leaders a viable business case. Once everyone is on board, it’s time to create some baseline metrics and goals and then determine what the ROI needs to be based on the program qualifications being set in place. The components of a business case include:

  • Goals and objectives for the social customer care initiative
  • A strategy to meet the social customer care goals and objectives
  • Metrics/Key Performance Indicators (KPIs) to measure the goals and objectives
  • The business results (cost savings or revenue generation) or the return on investment (ROI) for the social customer care initiative.

How to Calculate Social Customer Care ROI

Constellation often hears comments such as “the ROI of social media can’t be calculated because there are too many unknowns” or “don’t worry about the ROI – social media is very tactical – just start doing it – get a Twitter handle, a Facebook page, a Pinterest account.” Some people may quote metrics and/or KPIs, but few know how to convert them into ROI.

An ROI calculation offers a way to put the business strategy and metrics into a formula to show, in numbers, how the strategy is, for instance, increasing revenue or decreasing costs. ROI calculations can also provide perspective on the potential strengths or weaknesses of the strategy. Examples in this report will show how correctly calculating ROI will help in the evaluation and improvement of your strategies. The formula to calculate ROI is:


Return on Investment
= (Gains from Investment) – (Costs of Investment) x 100

Costs of Investment

Calculating the ROI of social media involves three variables:

  • Traditional customer care business metrics
  • Social media metrics
  • Changes to traditional business processes and metrics when social media is applied to a business initiative.

Here’s an Example: Social Customer Care Increases Revenue and Customer Lifetime Value

An international airline that services over 280 destinations worldwide uses a social media tool for monitoring all its social channels, engaging back with its online communities, doing in-depth reporting, and tracking KPI metrics and agent performance. Most importantly, the platform the airline uses supports its global consumer base, enabling the airline to monitor the 30,000 social mentions received in more than nine languages each month.

A company’s revenue is based on the number of customers and the average purchase value in a period of time. When companies use a social media platform, they can increase their revenue from existing customers. By engaging and listening, they can retain them as customers and increase the amount and frequency of purchases over a longer period of time. When the company is truly listening and integrating the feedback, like the airline above, it will be able to meet the needs of the customer and increase not only the amount that the customer spends, but also the number of years the customer spends with that company.

Calculating Costs

To calculate costs, we look at the cost of the technology and implementation (see Figure 1). Then we also look at the cost of the employees or customer service professionals providing the social customer care. The payroll costs include the expenses of a manager part-time as well as the cost of 10 part-time customer service agents with 40 percent of their time spent on social customer care and 50 full-time customer care social media professionals. The total of the costs for both technology ($30,000) and payroll ($2,720,400) is $2,750,400.

Figure 1. Airline Example of Customer Social Media Cost CalculationCost of Social Customer Care

Calculating Gains

The benefit calculation is created by determining the extra revenue generated from more loyal customers who spend more with the airline. The annual number of customers or passengers per year is 22,000,000 with an average spend per customer of $250. With the increased responsiveness and better social customer service, we estimate that 10 percent of the customers will spend 10 percent more per year. The ROI is calculated by taking the $55,000,000 minus $2,750,400 x 100 divided by $2,750,400. This total increase in revenue is approximately $55,000,000 (see Figure 2), and the ROI is 1899 percent. This means that the airline made $18.99 for every dollar that it invested in social customer care.

Figure 2. Airline Example of Customer Social Media Gain Calculation

Screen Shot 2016-09-01 at 11.55.17 AM

In the report, we go over many different examples of how companies have calculated ROI. Though there are nearly dozens of ways that social adds to the value of not only Customer Service, Marketing, Product Innovation, Supply Chain, ERP as well as Internal Operations – like acquiring recruiting and retaining top talent. If you want more help on these types of calculations, we are here to help!

@DrNatalie, VP and Principal Analyst, Constellation Research

Covering Customer-Facing Applications and how Social, IOT, Machine Learning and AI Transform Customer Experience

[i] “Managing Bad News in Social Media: A Case Study on Domino’s Pizza Crisis”, Jaram Park, Meeyoung Cha, Hoh Kim, Jaeseung Jeong, Graduate School of Culture Technology, KAIST, from Proceedings of the Sixth International AAAI Conference on Weblogs and Social Media, 2012, https://www.aaai.org/ocs/index.php/ICWSM/ICWSM12/paper/download/4672/4994‪.

[ii] “Red Cross Does PR Disaster Recovery on Rogue Tweet”, Todd Wasserman, Mashable, February 16, 2011,http://mashable.com/2011/02/16/red-cross-tweet/#q0MtRnonuSqN

[iii] “#McDStories: When a Hashtag Becomes a Bashtag”, Kashmir Hill, Forbes, January 24, 2012, http://www.forbes.com/sites/kashmirhill/2012/01/24/mcdstories-when-a-hashtag-becomes-a-bashtag/#2b511f55193f

[iv] “Gilbert Gottfried Fired as Aflac Duck after Japanese Tsunami Tweets”, Huffington Post, March 14, 2011, http://www.huffingtonpost.com/2011/03/14/gilbert-gottfried-fired-aflac_n_835692.html.

[v] “Tyler Seguin’s Account Tweets ‘Only Steers and Queers in Texas’; New Stars Center Says He Was Hacked”, SportsDay, July 2013, http://sportsday.dallasnews.com/dallas-stars/starsheadlines/2013/07/07/tyler-seguin-s-account-tweets-only-steers-and-queers-in-texas-new-stars-center-say-he-was-hacked.

 

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ROI of Social Media: Myths, Truths and How to Measure

Are You Wondering How To Calculate the ROI of Social Media?

If you have downloaded my ebook you probably want to know how your social media initiative could or is providing value to your organization.  And you might have heard a range of things on social networks, on webinars or at conferences questioning why you would calculate the return on investment (ROI) of social media.

  • Would you calculate the ROI of a phone?
  • Would you calculate the ROI of your mom?
  • Would you calculate ROI of your pants?

And you might have also heard that social media ROI can’t be calculated, but you can track things. Or that

the ROI of social media is that you will be in business in 5 years, or that social media ROI is that your customer satisfaction score went up 5 points because of your online community.

And while some of these statements might make you chuckle and others might seem like they are true, they don’t really help you in a business meeting with peers and executives who want real business answers.

If you are a skeptic about social media, it may seem like an unstructured stream of consciousness. Why would you dive into what seems immeasurable? And without a way to obtain benchmarks, how could you tell when something works? How could you track the progress and gather the right metrics or do more of the right things? And now when to stop doing the wrong things? How could you articulate the business case for social media?

If you are on the front lines doing social media, you may be witnessing your customers making purchase decisions based on what other customers write in e-reviews or clicking on your deal links in Twitter. You may be seeing the sentiment towards your brand went from being pretty negative, to now more favorable because you are reaching out to unhappy customers and making things right. You might be gaining share of voice online over your competitors or seeing that customer advocacy for the brand is building online with key influencers and brand advocates.

Whether you fall into the first or second group, the issue of justifying the business case for social media is the B-I-G question. How would you justify what you want to try or are currently doing? How do you ask for budget for people, process and technology? How do you speak intelligently about a field where people are comparing the ROI of wearing your pants to the ROI of social media?

Research Study: Marketers Are Unsure How to Calculate Social Media ROI

The fact is there is an ROI of your mom, a phone and wearing your pants. There is an ROI of anything that provides value. And that’s the point I want to make. However, how one would calculate social media ROI is not always obvious. A study by Lenskold Group[i] assessed social media ROI measurement best practices compared to traditional marketing ROI measurement. This study found less than 20% of marketers feel they can measure social media ROI (see Figure 1).

Marketers for whom social media is a high priority (55%), said the reasons why measurement is a priority (see Figure 2) are because:

  • 65% need to improve effectiveness
  • 59% need to improve integration with other marketing
  • 48% feel pressure to report quantified outcomes.

Figure 2 also shows, for marketers who ranks social media as a low priority (45%), the study found that:

  • 41% are still experimenting with social media
  • 19% don’t have defined metrics or objectives and
  • 18% currently have very low social media budgets.

 

Stay tuned, as I’ll be diving deeper into this topic. Impatient? Feel free to download my ebook here.

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