Marrying for the MoneyThe ROI of Relationships SXSWi March, 2011

Jen van der MeerDachis Group@jenvandermeer

#MROI

What you’ll need to get ROI from our time together today:

1-2 NapkinsFelt tip penBasic math skillsAt least one relationship to measure:_Dog_Friend_Mom_Customer_Potential fiancée

Wall St. @jenvandermeer

I calculate ROI in my sleep

@ehuddleston

love it. Measure success through operational metrics that are meaningful to biz and focus social ROI on exception mgmt @jhagel #SBS2011

@mghoza

#e20 RT @andyjankowski: "What’s missing in most #social business attempts 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

ROI is under attack!

Good news: you can measure the ROI of ANY relationship

•= - 567%

4 Cases

Case study 1: The rich husband

The stats upfront

Time frame: 2006Job: Real estate lawyerEducation: Ivy undergrad, top law schoolProspects: Real estate developerCurrent salary: $80,000 + 20k in bonusSalary of fellow alumni: $1 MM in combination of cash + bonusIncreasing 100% each yearInvestment: fabulous wardrobe $100,000

Problem: ROI framework

Data that was needed at the start:

Length of relationshipCash transaction amount per yearProfit per transactionUnderstanding of stocks vs. flowsCost 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

$100k $1 MM $1 MM $100k $10k

1 time acquisition cost

Year 0

-$100k

-$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

$50 x 12 months x 14 years

$300 x 14 years

$20 x 12 months x 14 years

Skippy lives for 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

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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.

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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\

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The value of a fan:

Problem with value of a fan view

Fans andcustomers

Customers who are not

on FB

“Fans” who don’t buy (haters, totally

unqualified)

#ROIFAIL

Case Study 4: Holistic customer Life time value

Gas profits

Marketing Decision:

Gas customer lifetime value

2006 2007 2008 2009 2010

Revenue

Costs x year

Profit x year

$1500 $1800 $2100 $2500 $3000

1 time acquisition cost

Year 0

-$100

-$1410 -$1692 -$1974 -$2350 -$2820

$90 $108 $126 $150 $180+ + + +

$100k- = $554$654

$100= 5.5x

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ROI Conclusion:

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So we CAN measure the ROI of a relationship.

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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

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SO WHAT.(do we measure).

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Healthy relationship?

# and quality of:hugs. kisses. pleasant surprises. help around the house. positive reinforcement. listening. mutual support.

shared experiences?\\

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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.

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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.”

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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.

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fitbit

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Energy Hub

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James Burke:

Applying Analytics to Relationships

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Analog analytics

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.

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thank you! @jenvandermeer