This is probably the best primer I’ve ever seen on calculating your ROI on your Social Media efforts. Really fantastic work on this piece.
The most important formula in social media is your Customer Lifetime Value (CLV). In a very basic sense, Customer Lifetime Value is the amount of revenue a customer will bring to your company over the course of their lifetime with your brand.
So, for example, if you’re a lawn care company and you know that a typical customer spends $80 per month with you and that the average customer stays with your company for 3 years, then your Customer Lifetime Value would be $80 x 12 months x 3 years = $2,880.
Once you know your CLV, you can decide how much you’d like to invest to acquire a customer. This is called your Allowable Cost Per Sale. Many people use 10% of their CLV as a starting point for their Allowable Cost Per Sale. In the example above, your CLV is $2,880 and 10% of your CLV is $288, so your Allowable Cost Per Sale is that number: $288.
- The Importance of Customer Lifetime Value in Enhancing Retention and Boosting Revenue (customerthink.com)
- Why is Customer Lifetime Value Important, to Enhance Retention and Boost Revenue (customerthink.com)