Marrying for the Money The ROI of Relationships SXSWi March, 2011 Jen van der Meer Dachis Group @jenvandermeer #MROI
What you’ll need to get ROI from our time together today:
Felt tip pen
Basic math skills
At least one relationship to measure:
Wall St. @jenvandermeer I calculate ROI in my sleep
ROI is under attack! @ehuddleston love it. Measure success through operational metrics that are meaningful to biz and focus social ROI on exception mgmt @ jhagel # SBS2 011 @mghoza #e20 RT @ an dyjankows ki : "What’s m issing in most #social business attempt s is a systematic link to metrics that matter." @ jbernoff # sbs2011 @tstaley ROI analysis for social software is a "fool's errand" John Hagel # SBS2011 @tmuellernyc We are at an inflection point, a social generation replaces spreadsheet generation. @ jobsworth , # SBS2011
Good news: you can measure the ROI of ANY relationship
= - 567%
Case study 1: The rich husband
The stats upfront
Time frame: 2006
Job: Real estate lawyer
Education: Ivy undergrad, top law school
Prospects: Real estate developer
Current salary: $80,000 + 20k in bonus
Salary of fellow alumni:
$1 MM in combination of cash + bonus
Increasing 100% each year
Investment: fabulous wardrobe $100,000
Problem: ROI framework Data that was needed at the start: Length of relationship Cash transaction amount per year Profit per transaction Understanding of stocks vs. flows Cost of investment to initiate relationship
Length of relationship? 5 years
Revenue per year: $100k $1MM $1 MM $10K $100k
Profit per yearly transactions $900k $900k $-90k
Marriage lifetime value 2006 2007 2008 2009 2010 Revenue Costs x year Profit x year 1 time acquisition cost Year 0 -$100k $100k $1 MM $1 MM $100k $10k -$100k -$100k -$100k -$100k -$100k $0 $900k $900k $0 $-90k + + + + $100k - = $1.61 MM $1.71 MM $100k = 11.1x
Successful relationship? 11.1 x return
Case study 2: Skippy
Skippy lives for 14 years $50 x 12 months x 14 years $300 x 14 years $20 x 12 months x 14 years - $8,400 - $4,200 - $3,360 = - $15,960
Initial cost: $2,000 Revenue: $0 Lifetime cost: $-15,960 ROI = $15,960 - $2,000 = $-17,960 $2,000 = -898% Skippy ROI: the value of a dog
< ROI Conclusion:
What is the problem with measuring the transactional cost of a relationship? What we value most are the transactions that cannot be measured . Immeasurable. Beyond measure. Priceless.
Case study 3: Value of a Facebook fan
Value of a fan: Vitrue: $3.60 (earned media) Syncapse: $136.38 (layer cake of value) Cost of a fan: Webtrends: $1.07
The value of a fan:
Problem with value of a fan view Fans and customers Customers who are not on FB “ Fans” who don’t buy (haters, totally unqualified) #ROIFAIL
Case Study 4: Holistic customer Life time value
Gas customer lifetime value 2006 2007 2008 2009 2010 Revenue Costs x year Profit x year 1 time acquisition cost Year 0 -$100 $1500 $1800 $2100 $2500 $3000 -$1410 -$1692 -$1974 -$2350 -$2820 $90 $108 $126 $150 $180 + + + + $100k - = $554 $654 $100 = 5.5x
< ROI Conclusion: <
So we CAN measure the ROI of a relationship. But transactional value distorts the purpose of why people are in business. Why they become customers.
“ Your grandparents are far more prepared for what’s coming than you are. They understood the human connection, small-town rules. All of you who just worry about metrics , numbers, roi, you're going to die." - @garyvee
SO WHAT. (do we measure).
Healthy relationship? # and quality of: hugs. kisses. pleasant surprises. help around the house. positive reinforcement. listening. mutual support. shared experiences?
Customer referral value According to Kumar, Petersen, and Leone, your most valuable customers are those whose word of mouth brings in the most profitable new customers, regardless of how much they themselves buy.
Wall Street Secret Revealed: Customer Lifetime Value is not something that “the street” cares about. When CMOs and CTOs say ROI, they really mean, “show me a pretty dashboard.”
How far can we take this? As the social graph reveals a huge volume of data about our actual relational behavior, we have an opportunity to pause for a moment: to consider the value system reflected in how we measure each other, ourselves, our relationships in the world.
James Burke: Applying Analytics to Relationships
In conclusion: ROI can be measured. But human connections are fluid, dynamic, and worth more than financial transactions alone. To measure the health of a relationship, define those actions of reciprocity and advocacy.