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Why Online Reputation Management Provides a Great Return on Investment

Business owners have two common reactions when first learning about online marketing services: a basic understanding that online marketing is important and a question as to whether online marketing is worth the investment. For the owner of any company, the money that could be invested in online marketing services could also be directed towards other uses. As with any business investment, the benefits provided by a specific internet marketing effort should be balanced against the cost of receiving that service.

For one specific service, online reputation management, there is a simple method for determining value. Since the goals of ORM are straightforward and measurable, there is explicit data available to weigh investment against return. Thus we can directly see why online reputation management provides a great return on investment for your business.

Goals of Online Reputation Management

The ultimate goal of online reputation management is more revenue for your business. But the path from a better online reputation to more money from your customers also has concrete, intermediate steps. An experienced online marketing company can develop an integrated method of tracking measurable goals.

The most visible goal is the composition of search results for a key phrase. Since search engine results change on a daily basis, tracking the changing composition of results can show what potential customers are reading about a particular business. While search rankings are important, they are not necessarily the most important goal in ORM.

Tracking the number of visitors to a business website and analyzing whether those visitors eventually turn into customers are the primary factors determining the success of an online reputation management effort. While conversion data requires a more sophisticated integration of online and offline sales data, even the most basic business website is capable of tracking visitor numbers.

If the number of visitors to a company website increases over time, then, logically, the number of those visitors who eventually become customers should also increase. The difficult part of analyzing the return on investment of ORM is deducing how the conversion rate interacts with the additional revenue generated per new customer.

Value of Online Reputation

Businesses with better online reputations generate more traffic to their websites. But a better online reputation also leads to more walk-in customers, phone inquiries, and a higher average revenue per customer. The amount of traffic flowing to a website is easy to track. The substantial, additional benefits of improved online reputation are harder to follow.

The counter-example of a business with a poor online reputation provides a useful analysis. If a business has terrible reviews visible on the front page of a major search engine, it is highly likely prospective customers will never purchase from that business. Even worse, because the types of customers conducting specific searches for a business are very likely to purchase, these are valuable prospects who are going directly to the competition.

The trick for businesses interested in capitalizing on their positive online reputation is to find some way to measure the true value of a new customer. By first determining how much a new customer is worth, a business owner can then decide whether a given investment on a marketing service like online reputation management is worth it.

Calculating Return on Investment

Professional marketing firms will be happy to assist in analyzing data on revenue per customer. But for small business owners who want to perform the data analysis themselves, the process is straightforward.

  • First, calculate the average revenue spent per new customer per transaction over the last year.
  • Next, find the average number of transactions per customer over the last year.
  • Finally, determine the length of time the average new customer continues to be a customer of your business.

Those three data items will lead to a rough estimate of the average lifetime revenue per new customer. More sophisticated analyses will account for fixed costs and come up with a lifetime contribution margin per new customer. The most advanced companies will be able to segment new customers by sales channel to see if customers who interact with the business online account for a higher average value than customers who interact with the business through other channels.

The average lifetime contribution margin per new customer coupled with the net online conversion rate allows a business owner to see how many additional prospects an ORM strategy must generate to be worth the investment. In concrete terms, if the average new customer provides $300 in lifetime revenue to a business and the net online conversion rate is 10%, then an ORM service which generates 3 additional website visitors per day is worth $3000 per month to a business.

If the ORM service costs less than $3000 per month, then it is clearly a great investment for the business.

For more detailed information about online reputation management or an analysis specific to your company, call the team at Argon Marketing at 808-725-9389 or contact us today.

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