Handy Little Tool for the Recession: Customer Lifetime Value Ratio

As I visit with fellow marketing executives around the globe, something that they frequently discuss is their need for employees who have the ability to effectively and accurately measure the ROI on any given initiative. Having been a corporate accountant in a former life, I’m a big fan of Marketing Return on Investment (MROI) in making marketing decisions.

Although there are many measurements that provides good actionable data, one of my favorites is the Customer Lifetime Value Ratio (CLV). But don’t be intimidated by the name – this is relatively simple stuff that might help you keep your current job or help you land your next one.

In simplest terms, CLV is defined as the net present value of the annually recurring revenue generated by a customer minus the customer acquisition costs and customer maintenance costs. Unless your company has been in business long enough to obtain the actual customer churn rate, some suggest you are safe using a horizon of 3-5 years in your calculations.

I like this measurement because it is somewhat comprehensive in its reach. It gives me the following:

• A better picture of the true cost of customer acquisition (which of course includes things like time to close)
• A better measurement of customer loyalty program ROI
• The actual customer churn rates – a benchmark against which we measure future progress
• As I make tweaks to marketing, this helps me optimize our marketing efforts. When you combine this with analytic (like those from Omniture), you really begin to have a wealth of information at your fingertips.

Related to this are things like Customer Acquisition Cost Ratio (how long it will take a customer to payback their acquisition costs), Average Deal Size, Close Rates, Discount Rates, etc.

If the recession has not yet caused you to really understand these measurements, now may be a great time to bone up on your reading. I recommend the following sources:

Haut Tec: http://blog.sciodev.com/2009/02/10/saas-metrics-saasonomics-101/
Wikipedia: http://en.wikipedia.org/wiki/Customer_lifetime_value

In the Trenches with Enterprise Online Communities – Part 2

Notwithstanding excellent thought leadership from companies like Forrester and Gartner, we still run into a lot of people who are either paying the price for jumping into social media too quickly or who are scratching their heads trying to figure out what to make of it all. Since the proper knowledge, appropriate strategy, and right technology can make the difference between a raging success or a miserable failure, we wanted to reiterate a few of the lessons we have learned while “getting our hands dirty” by helping corporate enterprises build successful communities.

Previously, we discussed the merits of using corporate social communities with often-neglected audiences like employees, partners, vendors and customers. In this post, we will discuss what behaviors to expect from those who gather in your community.

Human Behavior: An obvious element that is critical to the success of your corporate community is the amount of contribution your would-be participants are willing to make. After all, how compelling can you make your community if the “community” isn’t willing to talk to each other? What does research show that you can realistically expect from your community audience and will you have enough people to make your corporate community a success?

People’s behavior online does not necessarily reflect their behavior in person. Most would agree that even the worst social introvert becomes an extrovert online and will share their opinion unashamedly. The problem is the consistency with which people will speak up. According to Gartner research, only 3% of your community users will be active content creators while another 3-10% will contribute to that content. Everyone else is either a Lurker or Opportunist (source: http://www.gartnereventsondemand.com/event.php/CRF10/B). As such, if your target audience consists of 100 people, then according to Gartner, only 3 will initiate content within the community and only another 3-10 will comment on that content. Will that be enough? If not, then an online community may not be the right tool for you.

There is an elusive number at which point your community reaches “critical mass,” the point at which the community takes on a life of its own and there is enough interaction to keep people coming back. Unfortunately, I don’t know of a tried-and-true formula in determining how many people it takes to reach that “critical mass,” but I have observed that it is largely a function of your audience. Certain demographics tend to be more outspoken and more willing to participate in online conversations. The more active interaction you have, the fewer community members you will need to reach that critical mass.

We have learned that you can help stimulate conversation by interjecting training content into the right audience (the subject of my first post). Be aware that merely throwing a training video at a group will likely backfire on you. But when your community has the expectations to congregating to learn and are willing to share and learn from each other as well as from your trainers, interjecting social media into to appropriate places of an eLearning system can better engage your audience and yield pleasantly surprising results. Each audience will obviously yield different outcomes but what can you expect from better engaging your employees? Hewitt Research in 2008 found that increasing employee engagement from low to high on a workforce of 10,000 employees could yield a financial impact exceeding $42 million (source: http://www.hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/DDGEngagementfull.pdf).

Peer Ranking of Your Contributors: By rewarding those who speak up in your community can also help drive more people to interact. A few systems like LearnSocial by Wi5Connect offer the ability for users to “vote” on both contributed content and on those who made the contribution. This not only gives your contributors recognition, it allows you to identify your subject matter experts – go to people for your organization. Using an algorithm of ratings and the number of posts, Gartner presents a five-tier scale for contributors raging from Guru, Wiz and Master to Guide and Apprentice.

In the Trenches with Enterprise Online Communities - Part I

There has been a lot of really good advice from Jeremiah Owyang of Forrester and others about building a successful enterprise community (http://www.forrester.com/Research/Document/Excerpt/0,7211,44041,00.html). Yet we still run into a lot of people who are either paying the price for jumping into social media too quickly or who are scratching their heads trying to figure out what to make of it all. Since the proper knowledge, appropriate strategy, and right technology can make the difference between a raging success or a miserable failure, we wanted to reiterate a few of the lessons we have learned while “getting our hands dirty” by helping corporate enterprises build successful communities.

NOTE: This blog focuses on forming your own corporate community - a different strategy than joining Facebook, LinkedIn or Twitter. Although both strategies have value, this is the first of a three-part series in which we will discuss the key issues of forming your own successful online corporate community. This first blog focuses on “purpose.”

Purpose: Ask yourself why you want to form an online community and if your audience already has the propensity to gather online. A good exercise is to see if the would-be participants of your community already assemble together in the real world to chat. If they do, then you stand a better chance of having a successful online community. If they don’t, then you need to come up with a really compelling reason for those people to gather. For those of you who are new to this, the “built it and they will come” idea is not working out so well. Your community needs to offer its participants not only compelling reasons to come to your site but incentive to come back with regularity and loiter for a while.

I don’t want to oversimplify this but the real world is a great testing ground to guide you for success online. For example, if you held a brainstorming meeting with your engineering staff focused on solving a specific problem, you would likely have a productive meeting with tangible outcomes. Conversely, if you took that same group of people and threw them into a conference room to “talk amongst themselves” with no guidance or reason for gathering – not much of business value would likely take place. Why should it be any different online?

Web 2.0 purists rightfully say that social media is transparent, inclusive, authentic, vibrant and consumer-driven and warn against any attempts to control or organize the conversation. We agree. Yet, you need to remember that your audience in large part, dictates these rules. For example, you should avoid product-driven conversations in your marketing communities – but your partner or customer communities will likely WANT to talk about your products.

This leads us to the second issue related to purpose – does your audience have a reason to develop a long-term relationship with you and each other? In general, retail customers do not tend to want or need that long-term relationship. The retail world has found much better success with customer-written product ratings rather than a traditional online community. On the other hand, B2B customers tend to naturally have a more compelling reason to develop a long-term relationship with you and each other. After all, if you have paid $100,000+ for a product, you are more likely to invest the time to learn everything about it and how others are using it strategically in business (which coincidentally is a great use of a community). Although there are examples of successful B2C communities, the B2B world seems to have an easier time of it.

A lot of people focus their attention solely on marketing and how to create a community of their prospective customers. As a result, often-overlooked audiences that are seeing tremendous success in corporate communities include employees, vendors, partners and customers. Regardless if you already have a community or want to launch one, it’s a good idea to keep your various audiences in mind and why each of them would want to congregate online in your community.

Third, a somewhat obvious but neglected element of successful corporate communities is that their participants share common interests, beliefs or philosophies, and receive multiple ongoing positive interactions while in the community. I recommend you identify what those common interests are and add content that fosters conversation around the common interests, beliefs, etc. We have seen that you can actually encourage the “multiple positive interactions” with both the right purpose and with the appropriate technology. A very positive and successful purpose for audiences like employees, vendors, partners and customers is learning. But this is where most “private label” communities tend to falter. A growing number of companies are seeing tangible success with a new bread of community called a social learning community that is the combination of a social community, an online learning environment, and a database back end with analytics and reporting services.

We are seeing failing community initiatives salvaged by redirecting (or narrowing) the purpose of the community and by reexamining both the audience and technology.

Industry Trends: Companies push to effectively combine formal with informal learning (Bersin & Associates Research)

I was pleasantly surprised to find newly published research conducted by Bersin & Associates (which included companies like Xerox, Accenture, British Telecom, and Edwards Jones just to name a few) confirming that “formalizing” informal learning is one of the top priorities of many companies. If you have not yet read this study, you need to (please see the link at the bottom of this post).

Over the course of the past year, we have worked with numerous HR & Training Executives and Corporate Coaches from around North America on better measuring and improving training ROI, effectively bringing informal and formal learning together under the same roof, capturing and quantifying the “brain trust” held by their employees, and finding affordable ways to measurably increase the impact of training on reduced budgets. As a software provider, we have learned much during this time pertaining to software design and platform functionality required to meet the above goals.

For all of those looking to go down this path, we would like to add lessons from our experience:
1. What parts of informal learning do you really need to capture? In simplest terms, informal learning is the dialog and transfer of knowledge between employees – typically occurring between cubicles, in the lunchroom, or outside the training room. It can be broken into different elements:
a. Ideas and Lessons Learned: Many of your staff have learned from mistakes and have come up with some rather ingenious ways to do things better, faster, or less expensively.
b. Open Dialog and Debate: Simply sharing ideas however is not enough. Ideas are polished through open dialog and debate. Open dialog resulting from experience creates deeper understanding and uncovers idea weaknesses and pitfalls.
c. Finding Subject Matter Experts. It’s one thing to listen to someone share their ideas on a podcast or PowerPoint – it’s entirely another to find an expert on the subject who may be located across the world – and begin a dialog with that person.

2. In order to make measureable improvements, informal learning MUST be accompanied by formal learning. You cannot have two isolated events and expect one to support the other. Both must be interwoven to make this work. Don’t take our word for it, the Education Development Center came to the same conclusion: http://www.knowledgejump.com/learning/informal.html

3. Choosing the right technology: There are a number of tools that can help you capture informal learning. In order to be useful, the tool you choose should offer the following functionality:
a. Security: Be careful because most open source and piecemeal tools do not offer sufficient security. Do in-depth research about the security offered by whatever tool you use. You don’t want your proprietary or confidential information to end up on You Tube!
b. Ability to Post Content: Both your trainers AND employees need the ability to post content. That may come in the form of an online video, a podcast, a PowerPoint, a document, picture or diagram, and comments.
c. Catalyst for Discussion and Debate: Be careful, many mistakenly think they have created an “informal learning system” by using wiki’s, You Tube, etc. Unless your system provides a catalyst for and can accommodate debate and discussion, you will not foster nor capture informal learning.
d. Voting: Allowing your employees to vote on answers, comments, and content contributed by others will make your life much easier. Let’s face it, not everything everyone has to say is useful to the organization. A voting mechanism quickly separates great ideas and content from irrelevant, less helpful, or inaccurate contributions.
e. Search Tool: An often-overlooked component is search ability. If a brilliant conversation took place a year ago between your best engineer and a new hire – the only way someone today would even know about it was to read back through a year’s worth of comments on the forum. Ain’t going to happen. A search tool allows people to find conversations and content relevant to their questions, regardless when that content was made.
f. Friend Finder: Similar to that found of Facebook or LinkedIn, this functionality allows employees to quickly find and connect with some of your brightest employees regardless of location, position, or department.
g. Don’t forget the database back end. A great deal of information will be collected and contained in your system. You need a way to capture all of it so you can run reports, analysis, etc.

4. Informal Online Learning = Online Communities. This may not seem so obvious at first. But remember that true informal learning is more than merely watching a podcast or PowerPoint of another person’s ideas. It also requires engaging others in conversation., asking and answering questions, putting things into context and sharing documents. The only social media tool we have found comprehensive enough to help us accomplish all of the above is the online community (which in reality includes forums, blogs, podcasts, wikis, etc.)

In conclusion, there is a great deal of knowledge and thought required to create an effective online learning tool that interweaves formal with informal learning. Merely folding social media into your LMS will not give you the results you expect. It took us over a year of trial, error, and 3rd party research to develop a reliably effective platform that generates tangible results. But the results are well worth the effort.

References:
1. Bersin & Associates: Informal Learning Becomes Formal (January 21, 2009). (link: http://joshbersin.com/2009/01/21/informal-learning-becomes-formal/comment-page-1/#comment-133).