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Many marketers are quick to prescribe to their clients a laundry list of tactics that may or may not be based on some sort of overall strategy.  The client usually comes back with “how much”, and the marketer usually responds with a la carte pricing as if you were buying a car.  Then the client chooses leather seats, moon roof, and keyless entry, but holds off on the special paint for now.  Sound familiar?

What’s largely missing from this exchange is what I would consider the most important question the marketer could ask their client: what is the lifetime value of your customer?

The lifetime what?

The lifetime value (LTV) of your customer is loosely defined as the net dollars a customer contributes over their life as a customer.  It is important because you will need to know this in order to properly assess what you will spend on all of the laundry listed items above.

Lifetime Value (LTV) = Total Customer Revenue – Total Customer Costs

Example: let’s assume that a customer generates $1,000 in LTV, or net contribution margin, during their lifetime.  Knowing this, you wouldn’t spend $1,000 to acquire a new customer, right?  Of course not.  You should earmark about 10%, or $100 towards acquisition cost.

My colleague Steve Patti found a really good LTV calculator, compliments of the Harvard Business School.  In there, there is an excellent graphic describing the impact of customer retention on profits, which basically illustrates the simple principal that the longer a customer stays with you, the more profit they generate.  For those of you who are finance geeks, a more complicated formula to calculate LTV would include things like net present value, or the discount rate, based on the company’s cost of capital, or things like churn rate (which vary across the lifetime of a customer).

Some examples of revenue are obviously new purchases, but also warranty upgrades, accessories, license renewals, etc.  Some examples of customer costs could be tech support, service and warranty claims.  This will easily get into a complex web of customer segmentation, which is OK, you need that and we will look at that here in a bit.  You could even break down your customer lifetime values by original marketing channel for additional insight (such as paid search, direct mail, broadcast, etc).

Not All Customers Are Created Equal

Another mistake marketers make is assuming that all of your customers are exactly the same in terms of revenue per customer, cost per aquisition and other metrics.  This is wrong.  Let me illustrate:

For many, the majority of their customers are going to fall in the middle of being fairly active and profitable customers, while about 20% are relativly inactive (or customers who use up a lot of support, rarely upgrade or buy peripheral products), and another 20% who are highly active.  The 20% of highly active customers are really your “brand evangelists”.  These are folks who refer a lot of new customers, upgrade frequently, and generally purchase on any cross-sell opportunity becasue they truly love your product or service.

What I want you to take away form this illustration is that each segment of customer has a different lifetime value (LTV) and cost per acquisition (CPA), and so how we market to them and how much to spend should be different.

Now that you see this illustration, should you spend the same amount of money marketing to the right side of this curve, as you would to the left?  An example is your local cable or phone company.  You see all kinds of introductory offers (with high cost per acquisition) to lure in a new customer, but there is little for the customer who has been there 5 years.  I’ve yet to receive any kind of promo from my cable company as an 8+ year customer – not even a free movie, or a DVR box upgrade.  How much is that really gong to cost them?  Not nearly as much as it would to lure me in with a “6 months free cable” offer, which is why high utilization customers (right side of model) have a much lower cost per aquisition on additional products and/or services.  Let’s not even mention all the people I would tell through all the social networks about how well they treated me, potentially adding several more new customers.  Instead, I am tempted to take the competitors introductory offers.  This kind of marketing does not create longevity through value, but fickleness through price.

So the only loyalty and retention marketing that is done is when you call to cancel, and they send you over the “retention” department as a last resort to get you to stay.  Why does it have to come down to that?  Now I tell all my friends that all they have to do to lower their bill is to call and complain about it.  My colleague Alan Weinkrantz did that, and it got him a segment on Good Morning America, and now the whole country is doing it – at the same time.  So let me close this “rant” by saying this type of bad marketing, similar to end of the month price reductions, or end of the year clearance sales, only conditions the consumer to react to your brand when it’s convenient for them, not when it’s convenient for you (the marketer).

The Relationship Between Lifetime Value and Cost Per Acquisition

Back to the chart above, we see that as we move to the right, our lifetime value increases, as our cost per aquisition decreases.  This means that they are inversely proportional to one another.  The reason is that as a customer moves into a “high utilization” stage, you need to do little and spend little to get them to purchase, or to refer new customers.  This is where well-designed referral programs do very well.  For the most part, they require little resources and the rewards create high value to the customer, but are low cost to the company.  As marketers, we want to do everything possible to move customers from the low lifetime value, high cost per acquisition over to the high lifetime value, low cost per acquisition.

Some Examples of Lifetime Value

1. Diapers – as a father of 2 children now, I have purchased lots of diapers over the years.  You could assume the tenure of a customer (in this case a baby) would be about 2 to 2.5 years, and an average spend of $50-75 per month on the diapers and accompanying wipes, perhaps the direct lifetime value is around $1,500 – $2,000.  There is referent value as well, where I might tell other parents about how well Huggies is in stopping leaks, versus Pampers, etc.  This is called indirect lifetime value.  What could this be worth?

2. New Vehicles – it is estimated that a person will buy 7 cars over their lifetime.  If the average car sells for $30,000, with upgrades, interest on the note, and service, you could spend upwards of about $45,000 per vehicle.  This is why some dealerships go out of their way to service their customers because they want them to come back for another car in 4-7 years.  Just ask Carl Sewell, author of Customers For Life: How To Turn That One-Time Buyer Into a Lifetime Customer.  Personally, I am on my second Audi in 10 years.  My first one was great (I shouldn’t have gotten rid of it), but my second one has had two engine replacements so far.  In fact, it has had so many problems that I was considering moving to Lexus or BMW, and ditching the Audi brand.  The thing that is keeping me from doing that is the exceptional service I received from Cavender Audi in San Antonio.  As representatives of the brand, they stood by their product, and are now up to probably $20,000 in repairs on this one car of mine.  They want my business for the next 3 vehicles or more.

3. Cable Service - I mentioned that I had been a customer of the same cable company for 8 years now.  However, with increased competition, bundled packaging, price-lock guarantees and more, people are becoming more fickle and moving from service provider to service provider simply becasue of price.  The services offereings, packages, quality and reliability are all generally the same in the eyes of the consumer, so the common denominator becomes price and value.  I think these service providers could have customers for extended periods of time if they did more on loyaly and retention (the value part), versus focusing all efforts on defection from competitors and new acquisition (the price part).

Are you measuring lifetime value of the customer?

5 Comments »Tags: cost per acquisition, lifetime value, LTV

So Troy and I had a long, healthy discussion recently about what was better: a higher conversion rate, or a lower cost per conversion.  This stemmed off an optimization we did for a client in Google AdWords, and we basically had to pick which direction we wanted to go.

The choice may seem obvious; “well, of course I want more conversions.” But what if those conversions were costing you nearly double?  Let me illustrate:

Looking at two different types of PPC campaign strategies, we can see that Option B has 3 times as many clicks as Option A at only a 50% increase in cost per click, but a whopping 4.5 times the campaign cost.  Option B will likely scoop up more of the garbage clicks since it experiences a lower conversion rate.  So the questions remains:

“Do you want 2.5 times more conversions at 4.5 times the cost, and 2 times cost per conversion?”

I don’t think there is a no-brainer answer for this, but let me go back to our earlier blog post about cost per aquisition.  We need to understand what we are willing to spend in order to acquire a new cusotmer.  If that answer is $50, then perhaps Option B is fine, but if the answer is $25, then Option B may not be fine (A more complex answer to this exists if we actually look at the lifetime value of the customer, but for now, let’s just talk about cost per acquisition).  Option A seems to be more efficient on the surface than Option B, but then let’s also remember a previous post on how we can compare two compaigns side-by-side and evaluate them based on a Value-to-Spend Ratio.

Which option would you recommend for your client?

No Comments »Tags: conversion rate, conversions, cost per acquisition, cost per conversion

So Troy and I had a long, healthy discussion recently about what was better: a higher conversion rate, or a lower cost per conversion.  This stemmed off an optimization we did for a client in Google AdWords, and we basically had to pick which direction we wanted to go.

The choice may seem obvious; “well, of course I want more conversions.” But what if those conversions were costing you nearly double?  Let me illustrate:

Looking at two different types of PPC campaign strategies, we can see that Option B has 3 times as many clicks as Option A at only a 50% increase in cost per click, but a whopping 4.5 times the campaign cost.  Option B will likely scoop up more of the garbage clicks since it experiences a lower conversion rate.  So the questions remains:

“Do you want 2.5 times more conversions at 4.5 times the cost, and 2 times cost per conversion?”

I don’t think there is a no-brainer answer for this, but let me go back to our earlier blog post about cost per aquisition.  We need to understand what we are willing to spend in order to acquire a new cusotmer.  If that answer is $50, then perhaps Option B is fine, but if the answer is $25, then Option B may not be fine (A more complex answer to this exists if we actually look at the lifetime value of the customer, but for now, let’s just talk about cost per acquisition).  Option A seems to be more efficient on the surface than Option B, but then let’s also remember a previous post on how we can compare two compaigns side-by-side and evaluate them based on a Value-to-Spend Ratio.

Which option would you recommend for your client?

No Comments »Tags: conversion rate, conversions, cost per acquisition, cost per conversion

It seems like SEO, or search engine optimization is being commoditized these days. Everyone is into “SEO”, or is an “SEO-er”, is some kind of “SEO expert”, and there are even lots of “SEO tools” (even have one of my own), and soforth.

So what makes you an SEO expert anyway?  How long you have been doing it?  Well, the algorithms change frequently, so what you knew 5 years ago probably doesn’t apply today.  Is it your history of results?  Well, we all get lucky – even I’ve gotten lucky on some projects, but others have not been so successful.  So while you have hired an “SEO Expert” to come in an wave their magic wand, the fact is that your project could have a whole new set of problems they haven’t faced before.  Therefore, an expert is one who comes to the table with their toolbox in hand, with a strong understanding of what tool to use when various problems arise.

Even experts disagree. In fact, I read an article just the other day that was a compilation of SEO myths, taken from a grab bag of “SEO experts”.  Well, after reading the article, it made me feel as if nothing works, and everything is a myth.  I bet you could give each of these “experts” a project, and each would approach it differently, and each would get different results.

So rather than call myself an “SEO Expert”, I’d rather take the approach of being a “Professional Tester” instead.  To me, SEO is like trying to get into a safe full of cash with 50 different combination locks that you are trying to “tweak” to find the right combination and open the safe.  Metaphorically, the client reaps the rewards of all of the time and effort you spent trying to find that right “combination”, and you feel good because you justified your expense.  Don’t get me wrong, results are gradual and likely not a sudden “gush” of leads and sales, and the rate of return for each project will vary.

So what I’m saying is SEO takes a lot of testing and trials to see what works, and to see what is driving your organic traffic.  I like to keep an eye on my keyword searches to see if anything interesting pops up.  Sure, we get a lot of “pear analytics” and brand name searches, but we also got some hits on searches like “ppc alternative” and “how much does it cost to acquire each customer”.  Should I develop more content around these search terms?  How many times should I repeat the term on the page?  Should I put it in the title tag?  What about meta keywords – people say that doesn’t matter any more?  Does it?  It certainly can’t hurt, and other search engines other than Google have been known to still value the keyword, and there is about 30-35% of searches done on other engines besides Google.

There are (3) things I would attribute to getting maximum satisfaction out of your SEO efforts, and is primarily what our Website Analyzer scores you on:

1.  Relevancy – how relevant is your content to the phrases people may be seeking you out for?  If you are targeting “seo expert”, is the phrase in your page content, page title, page description, URL, etc.?  In other words, don’t expect to rank for “seo expert” if you haven’t mentioned it on the page several times, don’t have it in your page title or description, or anywhere else for that matter.

2.  Popularity – search engines are looking for relevant and popular sites.  If you have lots of inbound links, Google assesses the link and assigns a “vote” to your page.  The value of the vote depends on how popular the site was that linked to you, so it’s better IMHO to get a few links from popular sites (like TechCrunch for example), than lots of links from Company XYZ.  Building links to your site takes time, so be patient.  Blogging is a great way to get inbound links, and if you have good content, people will link to you, subscribe to you, Tweet you and other things.

3.  Structure – the architectural structure of your site can play a major role in your ability to be found in the search engines.  One of the first tasks your “SEO expert” should do is evaluate things such as a) clean URLs; b) XML sitemaps; c) HTML structure; d) meta guidelines and more.  I’ve even seen situation where changing host providers can make a difference.  Need a new host provider?  Try the Cloud over at Mosso.

So how do the “SEO experts” start?  What is the process?  It may vary from person to person, but I like this approach:

1.  Keyword Research – determine the kinds of search terms that people will most likely find you with.  Avoid industry jargon, or things that you specifically do.  For example, I have a friend who’s homepage is optimized for “dominate your market”.  Well, it’s likely no one is searching for that, even though that’s what they will help them do.  What the searcher may be looking for is “better market share” or “marketing effectiveness”, or maybe some other common search terms.  I like to use things like WordTracker or Google Keyword Tool to find relative search volumes.

2.  Content Development – now that you know the target keyphrases you want to go after, start developing content around those terms.  It’s usually best to target 2-3 (max) terms per page.  If you want to target “marketing effectiveness”, do things like write and tag blog posts about it, generate a full page dedicated to talking about “marketing effectiveness”, label a navigation link, add it to your title tag and your page description, etc.

3.  Optimization – make sure the site structure is sound, ensure there are no issues with 404’s (missing pages), or duplicate content.  Make sure the site has clean URL’s, and that it doens’t have anything important sitting in Flash.  Check your Google Webmasters Tools to make sure all of your pages have been indexed without any errors.

4.  Build Inbound Links – now we can turn our focus to building links to the site that have contextual relevance.  For example, if you are an “SEO expert”, than you would want the link pointing to you to say “SEO expert” rather than “click here”.  You can start creating your own inbound links from popular sitres such as Facebook, LinkedIn, YouTube, Get Satisfaction, Blog Catalog, Technorati, and others.  You can write articles and put them up on Google Knol, or you might even be able to create an entry in Wikipedia about your company.  All of these sites have tremendous domain authority, and will likely be on the first page of results.

Moral of the story: SEO is not a magic bullet.  It takes time and patience to get favorable results, but it will be your best source of leads over time in terms of cost per aquisition.

No Comments »Tags: popularity, relevancy, SEO, structure

I’ve sort of been on this WordPress kick lately, telling anyone and everyone that they need to move their site over to the WordPress platform.  The search engine optimization (SEO) benefits exceed what I have found on other content management systems, including Joomla, Drupal and Xaraya, and are much easier to install yourself.

First of all, there are hundreds, if not thousands of free templates you can get your hands on.  Here is one I came across that has 100 of the top free templates.  Not only that, but there are 3,990 free plugins as of today.  Plugins are kind of like Firefox extensions, if you use that browser.

So what are the SEO benefits?

1. You own the domain

I’ve had a few friends who had their blogs on Blogger or Typepad.  These are perfectly fine platforms; however, I see two main limitations: a) you are going to be pigeonholed into a typical blog format, so forget about adding any other pages to the site – with WordPress, you can add lots of other pages to your site; b) your blog content won’t be on your domain.  You can set up redirects, but Typepad or Blogger will be housing your content, so you won’t be getting any SEO credit for your site.  We had a friend who moved their blog content onto their main site, and within a couple of months, they began to rank for many more search terms.

2.  Clean URL’s

A prominent factor in your SEO plan is to ensure you have clean URL’s.  An example would be www.mywebsite.com/wordpress-is-great, versus www.mywebsite.com/index.php?id=32.  The clean URL has keywords in the title that can be beneficial to your SEO.  You can easily turn on the clean URL’s inside of WordPress by going to Settings / Permalinks, and changing it to your desired structure.

I use a custom structure:   /%Year%/%Postname%/

3.  All In One SEO Pack

This is arguably one of the best plugins WordPress has to offer.  It takes about 5 minutes to install, and will automate your title tags, meta descriptions and meta keywords for every blog posting.  You can still customize your individual page SEO tags as well, simply by overriding the fields on each page.  This plugin has been downloaded nearly 1,000,000 times, so it’s a must on your WordPress site for optimal SEO.

4.  Google XML Sitemaps

Having an XML sitemap for SEO ensures that when the search engine bots crawl your site that they pick up and index everything you have.  This plugin will create a Google-compliant XML sitemap which is automatically updated every time you post something new to your website.  All major search engines are notified about the update.  I have seen new blog posts indexed in as little as 3 hours after posting.

5.  Redirect Handling

When you change your “slug” in WordPress (or the permalink for your post URL) and then you go back and change it, the search engine may be indexing both versions of the page.  The search engine now sees that you have the exact same content on two different URL’s, and they have been known to devalue domains that look like have duplicate content.  For optimal SEO, you want to properly redirect these older page versions to the newer ones.  For this, we install the plugin called Redirection (only works for WordPress version 2.7 or higher).  This plugin also monitors any 404 errors (missing pages) that you might have.  You can even customize your redirects to another website if you need to.

There you have it!  The Top 5 reasons why I recommend WordPress as a part of my SEO solution.  What other plugins do you use?

1 Comment »Tags: SEO, wordpress

With a tough economy, and many companies struggling to keep, or gain market share, there seems to be an increase in lawsuits surrounding online advertising, and the strategy some companies use to bid on their competitor’s name.  We recently had an opportunity to be involved in a court case, and give expert testimony on the inner-workings of Google AdWords, and other PPC platforms, and how trademark rules are handled.

However, this is nothing new. Back in 2004, the insurance giant Geico, sued Google for allowing their competitors to bid on their name and “create confusion with consumers,” a clear violation of the Lanham Act.  So, what was happening is a Geico competitor would bid on the word “geico”, or maybe even “gieco”, and hope to outbid the actual company in the hopes of attracting potential leads.  Geico claims that not only was the competitor bidding on their name, but also using it in the ad itself.

Back in 2004, Overture had seemingly stricter rules, whereas Google took more of a “hands-off” approach, allowing trademarked terms and reviewing few complaints.  Now in 2009, things are more competitive, and compaines are doing whatever it takes to get leads and sales on one of the most cost-effective channels: the Internet.  So not only are some companies going to be tempted to bid on competitors trademarked names, but the owners of those trademarks are also going to be on the lookout more.  Here is what we know:

Google Trademark Policy

“With Google AdWords, advertisers may select trademarked terms as keywords or use them in the content of the ad. As a provider of space for advertisements, Google is not in a position to arbitrate trademark disputes between advertisers and trademark owners. As stated in our Terms and Conditions, advertisers are responsible for the keywords and ad text that they choose to use. Accordingly, Google encourages trademark owners to resolve their disputes directly with the advertiser, particularly because the advertiser may have similar ads on other sites. However, as a courtesy to trademark owners, Google is willing to perform a limited investigation of reasonable complaints.

Google’s trademark policy does not apply to search results, only to sponsored links. For trademark concerns about websites that appear in Google search results, the trademark owner should contact the site owner directly.

Learn more about Google’s trademark policy and copyright policy.”

Source:  Google AdWords Learning Center

Yahoo! Trademark Policy

“Advertisers sometimes bid on search terms that are the trademarks of others. For bids on search terms in Yahoo! Search Marketing’s Sponsored Search service, Yahoo! Search Marketing (formerly Overture Services, Inc.) requires advertisers to agree that their search terms, their listing titles and descriptions, and the content of their Web sites do not violate the trademark rights of others. In cases in which an advertiser has bid on a term that may be the trademark of another, Yahoo! Search Marketing allows the bids only if the advertiser presents content on its Web site that (a) refers to the trademark or its owner or related product in a permissible nominative manner without creating a likelihood of consumer confusion (for example, sale of a product bearing the trademark, or commentary, criticism or other permissible information about the trademark owner or its product) or (b) uses the term in a generic or merely descriptive manner. In addition, the advertiser’s listing should disclose the nature of the relevant content.”

Source: Yahoo! Search Marketing Legal Guidelines

So, in the end, both ad platforms tend to put most of the responsibility on the advertiser, but clearly are willing to investigate any disputes that may arise.  Both have ways to detect trademarked names, but only if they have been entered into their systems by the owner of the trademark.

Recently I saw in Google AdWords one of our ads in a campaign was automatically disapproved because we had a trademarked name in one of the ads – which we HAD permission to use.

Have you experienced any trademark no-no’s in any PPC platforms?  Describe your experience…

1 Comment »Tags: litigation, pay per click, PPC

San Antonio Business Journal – by Donna J. Tuttle

Manuel Pelaez-Prada had absolutely no interest in social networking.

After all, he had heard horror stories about identity theft and news reports of creeps trolling chat rooms. And his life was already full: He is the senior legal counsel for the Toyota Operations Center of Toyota Manufacturing North America Inc., has a wife and two small children, is an active civic volunteer, and dabbles in radio hosting and stand-up comedy on the side.

“I didn’t really feel like I needed to have an identity on the Internet. The people who needed to find me knew how to get in touch with me,” Pelaez-Prada says.

A friend and colleague at Toyota pestered until Pelaez-Prada gave in and created a Facebook page. Today, he can’t live without it.

“I’m hooked. My sister accuses me of Facebooking more than a 13-year-old girl,” the 34-year-old Pelaez-Prada quips.

Indeed, with 289 friends (and counting) and a profile photo of himself with a gigantic rooster, Pelaez-Prada’s bigger-than-life personality is palpable on Facebook almost any time of day via his trusty BlackBerry. He uses the social networking tool in both a personal and professional way — connecting with old friends, advocating for local causes, trumpeting his Democratic politics and posting thought-provoking links on issues like weapons in Gaza and hate crimes. Of course, there is the occasional joke, pithy comment and a small obsession with a Facebook application called Mob Wars, where he completes virtual drug smuggling by sea with other respectable corporate lawyers and executives across the country.

“In some ways, I feel like I’m the last person to arrive at this Facebook party,” Pelaez-Prada says. “But this is a whole new tool to build community. I’m in touch with former colleagues that I probably wouldn’t have kept up with. It is the most convenient way to connect with people, and it breaks down some of those barriers to community we’ve built up as people subspecialize and stick to their own cubicles and then go home to their 500 channels on cable.”

Without a doubt, the quickest way to expand your circle of friends and create new contacts exponentially these days is through a social networking tool. In a study of 17,000 Internet users in 29 countries, Universal McCann found that 82.9 percent of people watch video clips online, 72.8 percent read blogs, and 57.3 percent manage a profile on an existing social network.

Social networking sites “provide a virtual community for people interested in a particular subject or just to hang out together,” according to PC magazine. “Members create their own online profile with biographical data, pictures, likes, dislikes and any other information. They communicate with each other by voice, chat, instant message, videos and blogs, and the service typically provides a way for members to contact friends of other members.”

While Myspace.com, with 59.4 million users, is still listed as the largest social networking site in the United States, Facebook (with 40 million U.S. users), Classmates Online (17 million U.S. users), and LinkedIn (12 million U.S. users) are close behind and growing at rates more rapidly than MySpace, according to a September 2008 report issued by Nielsen Online. Globally, however, Facebook has 140 million users and LinkedIn has 30 million global users.

In September 2008, Twitter.com was listed as the fastest growing social network site — logging a 343 percent membership growth, from 533 members in September 2007 to 2.4 million users one year later, according to Nielsen Online.

Business professionals interviewed in San Antonio expressed the most comfort with both Facebook and LinkedIn — describing Myspace as more of a “teenager” site and Twitter (a microblogging phenomenon in which people “Tweet” thoughts and ideas via their mobile phones and PDAs) as “confusing.”

Still, on Tweetergrader.com’s list of Twitter Elite in San Antonio, author and Oak Hills Church pastor Max Lucado is in the No. 1 spot; followed by Blair Warren, a media and marketing professional who sells the One Sentence Persuasion Course; and, in third place, Jennifer Navarrete, a social media expert, podcaster and owner of Brewing Media.

Baby steps

But most executive management types in San Antonio haven’t embraced Twitter yet. “I’m on the tail end of the Baby Boomer generation, so I couldn’t get into Myspace because it seemed like too much exposure and too young,” Ramiro Cavazos, 47, and president/CEO of the San Antonio Hispanic Chamber of Commerce says.

But after a University of Texas at Austin college chum e-mailed him a request to join Facebook, Cavazos took the plunge. Today, he has 248 friends — ranging from high school friends from Weslaco, his godson in British Columbia to Bruce Bowen of the San Antonio Spurs. He “Facebooks” with business friends in South Texas, who keep Cavazos up-to-date on economic activity on the border.

“We live a crazy life, and Facebook is a wonderful way to keep track of friends and family with minimal effort and lots of return,” Cavazos says. “If you’re on Facebook five or 10 minutes a day, that’s enough to see how everyone is doing, wish people a happy birthday and see what events are going on.”

Once a person creates a profile on Facebook or LinkedIn, he or she can regulate their privacy settings to high (only friends can see photos and information) to low (everyone and anyone can view your holiday photos). Using the search tool, one can find classmates, colleagues and acquaintances and request to be their “friend” and vice versa.

Most applications find and “suggest” friends based on the person’s location, occupation, friends and networks. Many users look at the list of user’s friends to find people they know. What’s more, there are a cornucopia of applications that alert users to their friends’ birthdays; allow members to give each other virtual gifts, such as birthday cakes; and various holiday-themed antics, such as throwing virtual turkeys on Thanksgiving. There are quizzes to check your movie IQ or test what kind of virtual animal you would be.

“I haven’t ‘poked’ anyone yet,” Cavazos admits, referring to a Facebook application that urges users to virtually nudge or get the attention of another user. “There is still a lot of clutter that needs to be eliminated. I’ve gotten 30 requests to be a sea urchin. I mean, I’m not even going to respond to that.”
Blurring lines

Although started primarily as social tools, many of the platforms, such as Facebook and LinkedIn, now allow companies and organizations to create business pages. In San Antonio, companies that have a Facebook presence run the gamut, including insurance giant USAA, Coco Chocolate Lounge and Bistro, Six Flags Fiesta Texas, Podcast Ready, Spectrum Athletic Clubs and Trinity’s AtticRep Theater. Trinity’s AtticRep, for example, sends out schedules of upcoming shows to its fans, posts reviews, issues reminders and offers discounts to Facebook members.

Katie Harvey, president and CEO of KGBTexas Public Relations/Advertising, says a big initiative of her firm in the first quarter of 2009 is to help clients create social media marketing strategies and in-house policies.

“Almost everyone in this agency has a Facebook page. Everyone Twitters,” she says.

For clients entirely new to the medium, KGBTexas taps individual users within the client’s company to “act as ambassadors” in introducing social media to their colleagues and management.

“Social media, and particularly the digital advertising and marketing side of it, is a very cost effective and highly measurable avenue,” Harvey says. “We see a number of clients who are continuing to shift ad dollars to that because of the accountability and the return.”

Ryan Kelly, a former partner with Blue Clover, started Pear Analytics in April 2008. The company works directly with clients and as a value-added partner with ad agencies to provide services ranging from analytics to search engine optimization to business intelligence. Currently, the company is helping Spectrum Health Clubs with a Facebook campaign.

“Facebook and LinkedIn have recently opened advertising platforms where you can very specifically target a particular user group or demographic,” Kelly says. “We’re going in there with a New Year’s Resolution theme and we target by location — so San Antonio and Los Angeles — men and women who have the words yoga, Pilates, swimming, etc. in their profiles. Then they will see our ads. Even better, if you’re a friend of mine and you have those exercise terms in your profile, you’ll see my photo at the top as a fan of Spectrum. So this builds a circle of trust.”

With social networking and digital media “you can actually measure your marketing initiatives in terms of ROI and cost per acquisition. … At the end of the day, the client just wants to know: Did that move the sales needle?” Kelly says.
New wave advertising

The tricky part about social media marketing is that companies are not actually supposed to, well, advertise. Since the platforms are designed around an interactive and informal community, participants should be interesting and helpful in ways that direct and nudge traffic to their sites — not employ used-car salesman tactics.

Rick Sauter, vice president at Arizona-based Communitelligence Inc., a social media consulting company, says: “Don’t be too obvious about your marketing. Be perceived as a resource and people will come to you. I use Twitter and other channels to advertise our events, and early on I posted an event twice and people online chastised me for it. … I was still learning.”

Indeed, Ideagin and Podcast Ready’s Dean McCall, another longtime social media user, says it takes a certain amount of courage to create a Facebook page for your own company. McCall is getting ready to relaunch the Ideagin Web site and Podcast Ready is getting “reskinned” with user feedback applications, such as Get Satisfaction and UserVoice.

“People will tell you like it is, believe me. They are very honest, and you have to respond because you’re giving them a platform to tell you what they hate and what they like,” McCall says. “Sometimes what happens is that there is a swarm or mob mentality where users take such an interest that they feel an ownership in the site. And that’s a fine line because you don’t want them taking over. I’d be lying to you if I said I’d got that figured out yet.”

Chuck Hester is a North Carolina communications director for e-mail company iContact and author of an upcoming book about LinkedIn, where he has about 8,000 connections. Hester says social media users — both individuals and corporations — should take a “pay-it-forward” approach to their online presence.

“There are two basic rules with social networking: You have to be transparent — be honest about the good and the bad and tell people you’re working on the bad. You have to be part of the community; engage in the conversation in order for people to get to know you,” Hester says.

Meanwhile, at press time in San Antonio, Pelaez-Prada is working on his individual branding. He has racked up five new friends and is touting the savory food at Chico’s Tacos in El Paso, in between posting an item about Al Franken’s Senate win.

“I am who I am — in real life and on Facebook,” Pelaez says. “I never put anything out there that I won’t be comfortable eating again when someone shoves the words back down my throat. I’m very vocal about where I think the world needs to go and Facebook is a great way to do that.”

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It seems there is a lot of buzz around Twitter, and the act of “tweeting” what you are doing every 5 minutes. My developer friends Vid Luther and  John Gray wrote a program called GeoTweet that estimates in San Antonio alone, there are over 1,200 “Tweeple” (compared to about 4,300+ in Austin, 8,700+ in Los Angeles, and 17,000+ in NYC).  Techcrunch has estimated somewhere in the neighborhood of over 3 million users, and that was in March 2008.

So the answer is “yes”, Twitter can absolutely be used as a viable marketing tool. But first, let’s observe a few rules about using Twitter:

1. Post something useful. You see a lot of people tweeting play-by-plays of what they had for lunch. Quite frankly, no one really cares, and you are simply clogging up my timeline. Tweet a link to an interesting article you found, or a poll question, a new blog posting, or in my case, I like to tweet Website Analyzer scores that were recently run.
2. Don’t spam people. Twitter’s version of spam is you going out and following a bunch of people you don’t know for any reason, and hoping they will follow you back. Your followers will should grow organically. There is nothing wrong with following people with similar interests, but let them know how you found them.
3. Update moderately, but consistently. I think of Tweeting like blogging. You wouldn’t fill up your blog with hundreds of meaningless posts, right? Don’t over-tweet, but don’t under-tweet either. 5-10 tweets per day seems like a good number, and if you are posting meaningful stuff people care about, that is probably a tough goal.
4. Don’t use Twitter to chat. Some get confused between Twitter and chat. Don’t have a one-on-one conversation with your buddy – no one will know what you are talking about, so the more of that you do, the less they will pay attention to your tweets, and will likely “un-follow” you.

The point is, you have a real opportunity to find and engage a captive audience.  Remember the Awareness – Consideration – Purchase graphic we used in one of our recent posts?  This is the consideration stage of marketing – that crucial conversation piece that will have a much better chance of driving real conversions, or sales.

Example of How Dell Made $1M Using Twitter
My friend Alan Weinkrantz recently sent me an article about how Dell has chalked up $1 million dollars in revenue to Twitter. What they do is basically use Twitter to send special sale promotions to their followers. Now, you might be thinking that $1 million is not a lot of money to Dell, but look at it in terms of cost per acquisition.   All they did (basically) was have the guy (or gal) who manages their Twitter account (which one of their several accounts has nearly 3,500 followers) send out a special promo code, and sit back and watch the sales come in. This is arguably one of the lowest cost per acquisition channels there is. Here is a link to the full article.  Another company in San Antonio who does this very well is Mosso – Cloud Hosting.

Example of how Zappos.com Uses Twitter to Promote New $50,000 Product
I figured that would get your attention. That’s right, CEO Tony Hsieh is promoting his new “Cease and Desist” $50,000 t-shirt through Twitter and other channels. It’s a hilarious marketing campaign that says if you purchase this $50,000 t-shirt, that your wife or significant other will no longer be allowed to purchase shoes from Zappos.com for life. Check out the $50,000 t-shirt promo here.  Want to know if he sold any?  Follow Tony on Twitter and find out.

Example of how the Health Care industry uses Twitter
Really?  The health care industry?  That’s right!  Check out this article on how health care providers use Twitter that my friend Jennifer Dunn over at GDC sent me.  They use it to ask questions to engage their audience, post safety tips, and even health reminders, like when it’s time to get flu shots.

So if we follow a few basic rules, grow our captive audience base, there is no reason why Twitter cannot be a part of your marketing mix.  With little overhead and the chance for ultra-low cost per acquisition, you would be missing out if you weren’t engaged in this channel.  What do you think?

1 Comment »Tags: marketing tools, twitter

Today we are going to discuss how to measure Cost per Acquisition, which is a fancy way of saying “Cost per Sale”.  If you are like most companies, you probably have several marketing promotions going on across multiple channels. Maybe what you have is some online pay-per-click (PPC), organic search engine optimization (SEO), direct mail and radio.  Good marketing requires that we know and understand what sales are costing us from each channel.

Well, how do you know how much you are going to spend in each marketing channel?

The fact is, most are guessing. In order to properly assess what you are going to spend in each marketing channel, it is necessary to understand what you are willing to spend to acquire a new customer (cost per acquisition), and ultimately, the lifetime value of the customer.

Wait, what is “lifetime value of the customer”?  That is the net dollars a customer is worth to you from the moment they become a customer to the moment they are no longer a customer.  We will talk about this in much more detail in a future blog.

But for now, let’s say that the lifetime net value of a customer is $1,000 so I can illustrate how to use this to back into your cost per acquisition thresh hold. Now, depending on the type of company, margins, and a few other factors, the general rule of thumb is to allocate on average, 15 percent of the customer lifetime value to acquisition cost. This means for this example, we are willing to spend $150 to acquire a new customer from any marketing channel.

How To Measure Cost Per Acquisition

Great! Now, that was the easy part. The hard part is setting up each campaign to be able to track leads and acquisitions by source because we want to make sure we are not exceeding our cost per acquisition thresh hold. This is where everyone falls apart, because it takes process, training, leadership, dedication and the proper tools to do this. We can express cost per acquisition in a fairly simple equation:

You can get as detailed as you want on what “total campaign cost” means to you in terms of labor, graphic design, ad expense, printing, mailing, etc., but the most important thing is that you break it down by individual campaign. Keep in mind that your cost per acquisition may be quite high in the beginning as you front-load all of your set-up fees. Those will get diluted as the campaign starts to generate leads and sales over time.

OK. We’ve determined what campaigns we’re going to run, how much (roughly) we should spend to acquire a new customer ($150) each. How much money should we allocate to each campaign? Honestly, it will be an educated guess until you are tracking leads and sales efficiently to really know the answer to this. But let’s look at a direct mail example.

Direct Mail Example
Many companies purchase mailing lists based on a set criteria for demographic, household income, and some level of intent to purchase. Most direct mail campaigns I’ve done usually yield a 1-5% response rate, and out of those, a 10-30% convert into a sale.  So let’s make some assumptions for illustration purposes:

• List size:  10,000 names
• Total Campaign Cost:  $20,000 (includes list, design, printing, and mailing)
• Response Rate:  3%
• Conversion Rate:  15%

So based on the above response and conversion rates, we would get 300 people to respond to the mailer, and 45 people to buy (this is our Total Acquisitions in the equation above).  Now we know that our cost per acquisition is $20,000/45, or $444.44, which of course is higher than our initial cost per acquisition threshold, so we need to decide if this channel is feasible moving forward.

Pay-Per-Click Example
Pay-per-click is an online ad buying method where you run some ads on search engines, affiliate networks, social sites and other, to drive traffic to a landing page where you hope to “convert” the potential customer.  Results on PPC will vary by industry and competitiveness, but for illustration purposes, let’s assume the following:

• Total Click-Throughs: 2,500
• Total Campaign Cost:  $20,000 (includes set-up, landing page design, ad expenditures, etc.)
• Conversion Rate:  8%

So based on the above response and conversion rates, out of the 2,500 who clicked on our ad to arrive at the landing page,  200 visitors converted to a “sale”.  Now we know that our cost per acquisition is $20,000/200, or $100, which is $50 less than our initial cost per acquisition threshold, so comparatively speaking, the PPC campaign is yielding much better results than our direct mail example with the same investment, so we could take the funds spent on direct mail and re-distribute them to our PPC campaign.

So there is a basic example of how to measure your cost per acquisition.  This gets to be much harder to measure on traditional broadcast channels, so try using unique URL’s or 800 numbers to capture and segregate leads from various channels.

What are you doing to measure cost per acquisition?  How many channels are you marketing across?

No Comments »Tags: better marketing performance, cost per acquisition