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How to Make Money with Social Media: In the Beginning

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If your thought process around social media begins with tactics (Twitter, Facebook, Google+, and so on), do a flip-flop and start thinking about goals and objectives first. From there, you can move on to your strategy to help you accomplish your goals and objectives.
This chapter is from the book
  • Not long after the South by Southwest conference, Ricardo Guerrero had an idea that would change social media forever.

The date was Sunday, April 22, 2007 and Guerrero was relaxing with the latest edition of The New York Times. He was reading an article about Jack Dorsey and Biz Stone, the two inventors of a new social media platform called Twitter.

Guerrero had first learned about Twitter the previous month at South by Southwest, where it won the “Best of the Web” award. At the time, Twitter only had 100,000 users, and the future of the platform was still very much in doubt, so Guerrero was viewing it as a possible fad. But there was something about the platform that intrigued him, which is why he began trying to wrap his mind around a business application for it.

A lot has changed since that day in April 2007—the most important thing being that people have grown much more comfortable using tools such as Twitter, Pinterest, Facebook, Instagram, Google+, LinkedIn, and others as a way to connect with friends, business associates, and the brands they love.

But one fact hasn’t changed: Businesses are still trying to figure out how best to use social media to generate revenue. Even though 77 percent of the Fortune 500 use social media for business,1 only 12 percent of all businesses in the U.S. can tie their social media campaigns to revenue.2

That’s exactly the challenge Ricardo Guerrero was facing when he was reading the article in The New York Times. Ricardo was a Web Strategist for Dell Computers in Austin, Texas, and was trying to figure out ways to turn followers into dollars. At the time, nobody really knew how to do it. In fact, social media was so new that one well-respected expert said calculating the ROI of a social media campaign was like trying to calculate the ROI of the office landscaping—no matter how hard you try, it can’t accurately be done.3

But that answer didn’t sit well with Ricardo. After all, if a company invests in a new technology, it should expect a return on its investment; otherwise, there’s no reason to spend the money in the first place. It doesn’t matter if you’re a business owner, a marketing director, or a chief financial officer—if you spend money on any technology or piece of equipment, the reason you invest is because it will a) increase revenues, b) reduce costs, or c) improve efficiencies. If it can’t do one of those three things, why invest in it at all?

So Ricardo was trying to figure out a way to use this new tool to help Dell increase revenues. Most people understood that Twitter and other tools like it could be used to grow brand awareness, but nobody had really figured out how to use social media to specifically grow revenues.

But then, not long after reading the article, the light bulb went off.

Why not build a massive Twitter following for Dell Outlet and drive leads to their e-commerce pages via Twitter? If you could build a big audience, then you could alert the followers to special discounts available only on the Dell Outlet web page. When the followers saw the tweets with the special discounts, a certain percentage would click through to learn more about the offer. A certain percentage of those who clicked from the tweet to the e-commerce page would become customers.

It seemed logical enough. After all, the direct marketing industry had been using similar methodologies for over 50 years. Their approach was to send a direct mail letter to, say, 100,000 people. Of the 100,000 people who received the direct mail letter, about 0.5 percent would order the product and become customers. If the revenue generated from those 500 new customers covered the cost of the marketing campaign plus the cost of other items (materials, overhead, labor, and so on), then you’d have a winning campaign. Ideally, there was a profit margin built into the calculation. If your campaign paid for all your costs and generated a profit, you could ramp up the campaign and grow revenues, in theory, indefinitely.

The question for Ricardo was how to use that kind of math and apply it to Twitter. The starting point would have to be to get enough followers to gain traction, but nobody knew what that magic number of followers was. What they did know was that most of the people on Twitter at the time were early adopters, and early adopters were exactly the kind of people who would be interested in discounts on Dell computers.

So, on June 5, 2007, Dell Outlet sent out its first tweet, which was a nonpromotional message designed to engage the handful of people who were following them at the time. About 12 months later, they had 1,000 followers, which is not a lot, but it was enough to generate $500,000 in revenue directly tied to the @DellOutlet Twitter account.4 In other words, Dell generated an extra $500,000 in sales by being one of the first companies to figure out how to use a social media platform to drive prospects to an e-commerce page and convert them to customers.

It didn’t take long for Guerrero and the rest of the Dell Outlet team to figure out they were on to something. By December, 2008, Dell had 2,500 Twitter followers and $1 million in sales tied to the Twitter account.

Over time, the Twitter following for Dell Outlet grew exponentially. By December 2009, they had nearly 1.5 million Twitter followers and had been the starting point for more than $6.5 million in sales across all Dell Twitter accounts.5 Eventually, the Dell Outlet model got so much attention that other businesses jumped on the Twitter bandwagon and started using it as a revenue-generation tool as well.

But direct revenue generation only tells part of the Dell Outlet story. Although the $6.5 million in revenue was a huge success (especially when you consider that the cost of running the Dell Outlet Twitter account couldn’t have been all that expensive), other factors should be taken into consideration. For example, a community of Dell fans were so enthralled with the special offers Dell Outlet was making via Twitter that they started to collect and share the coupons on the Dell Outlet Facebook page. This not only broadened the Dell fan base and promoted the Dell brand, it also drove additional prospects to the Dell Outlet e-commerce pages at zero extra cost to Dell. In other words, the Dell Outlet Facebook community was acting as an extra marketing department for the company, so for every $1 Dell Outlet spent on marketing, the online community was adding another 5¢, 10¢, or 15¢ to the equation.

All this begs the question: If the model for growing revenues with social media was established in 2007, why do only 12 percent of the companies using social media tie their efforts to revenue generation? Why don’t 100 percent of the companies track their campaigns so that they can show the chief financial officer that $1 spent in social media generates $2 or $5 or $10 for their company?

The answer is simple—they don’t know how to do it. Oh, sure, they know the theory of how to do it, but they don’t know the specific steps involved in creating a social media campaign that actually generates revenue.

Another issue facing many people in charge of their social media campaigns is that some social media campaigns aren’t actually designed to generate revenue.

Yes, you read that right. This is a book titled How to Make Money with Social Media, and we just said that not every campaign is supposed to generate revenue.

What do we mean by that?

Some very successful social media campaigns aren’t designed to generate sales as much as they’re designed to generate satisfied customers. Dan Gingiss, the Director of Digital Customer Experience and Social Media for Discover Card, has a team of social media experts who monitor and review tweets and Facebook posts from customers. Discover is in a highly regulated industry, which makes responding to account-specific inquiries a challenge. But Discover has found ways to monitor the conversations and to take care of the customer’s concerns either via a Twitter direct message or in a secure online chat environment.

The response has been very positive, with customers responding with praise for Discover’s use of social media to handle customer service issues.

The idea behind this initiative is that Discover wanted to be able to answer customer questions in the channels in which the customer initiated the request. They also found that by participating in the online conversations in a personalized and genuine way, they were able to a) quickly solve the customer’s problems, b) demonstrate their superior customer service in a public ways, and c) minimize the negative commentary from disgruntled cardholders, who often end up posting positive commentary after being serviced.

In this particular case, Discover is using social media as a customer service tool. Although it’s difficult to assign a dollar amount to the value of a social customer service campaign, it’s not impossible. For starters, you can track how much it costs to manage a customer complaint using traditional media and compare it to the cost of managing it via social media.

In the old days, customer service complaints were handled almost exclusively via an 800 number. That meant manning an entire bank of phones with operators who could only handle one customer complaint at a time. If the operators got busy, customers were put on hold. When an angry customer gets put on hold, they grow increasingly frustrated. By the time the operator gets to the now-frustrated customer, the operator has to spend time easing them back into a civil and productive conversation. It was an expensive way to manage customer service.

By comparing the cost of traditional customer service to the cost of social media customer service, companies such as Discover can make a calculation of whether or not they have improved efficiencies by using social media customer service. If the cost of having a traditional customer service department is, say, $1 million per year, but the cost of having a blended traditional and social customer service department is $900,000, then their social media efforts “made” the company $100,000.

Of course, that’s a simplified view of the costs associated with a customer service department, but it highlights a larger issue—not all social media campaigns are designed to make money; some are designed to save money.

The Dell Outlet campaign was designed to drive prospects to an e-commerce page, and the Discover campaign was designed as a customer service tool, but what if your campaign is designed for neither? What if your campaign is simply designed to keep customers engaged with your products or services? For example, what if you don’t have an e-commerce page or a customer service department? How can you calculate the value of your social media campaign then?

That calculation isn’t as difficult as you might imagine. One way to do it is to analyze social media’s impact on your churn rate. If you’re like most companies, you lose a certain number of customers or clients each year. That churn has a real impact on your business. If you’re a $100 million corporation and 10 percent of your business leaves every year, that’s $10 million in lost revenue you have to replace each year just to stay even.

But let’s say you launch a social media campaign and are able to engage prospects and customers at such a rate that you reduce churn from 10 percent each year to 9.5 percent each year. That may not sound like much, but that 0.5 percent saves your company $500,000 in lost revenue. If the cost of running your social media campaign was $200,000, then you just “made” your company $300,000!

This example shows again that a social media campaign can provide value to a company in a number of different ways. Sometimes, as in the case of Dell Outlet, it can be tied directly to revenue. But other times, as in the case of Discover and the aforementioned example, the formula is a little more nuanced.

No matter what, if you’re going to run a successful campaign, it’s important that you use a system of metrics that can help you calculate whether or not the campaign is working. If you’re not tracking your results and tying them to revenue, then you’re not optimizing social media for everything that it can be.

Okay, let’s talk about what you can do with the information we just discussed. After all, learning new information is just half the battle. The other half is to apply the information so that it has an impact on your business.

Here are some things we’d like you to do as we wrap up this chapter:

  • Reframe your thinking. Many people think about social media from a tactical basis. In other words, they think about Facebook pages and Twitter handles and Google+ profiles before they think about goals and objectives. If that includes you, we’re going to ask you to change your perspective. Begin by identifying your goals and objectives for your campaign. Is it to drive leads? Is it to reduce churn? Or perhaps it’s simply to create brand preference. In the long run, if you want to make money with social media, you have to start with the end in mind.
  • Start using social media management tools. One of the biggest complaints people have about social media is that it takes so much effort to get real traction. Setting up a campaign isn’t all that difficult, but getting people engaged and active on your sites takes a lot of time and effort. One of the ways around this is to move beyond social media execution and move into social media management. We’ll cover social media management tools in the upcoming chapters, but if you want to jump online and get familiar with them right now, check out SproutSocial, Rignite, Oktopost, HootSuite, Socialbakers, and Webfluenz, all of which are top-ranked social media management tools. When you’re ready to go beyond social media management and move into social CRM, be sure to investigate Insightly, Nimble, and Batchwork.
  • Formalize your metrics. The odds are pretty good that you’re tracking some form of data around your social media campaigns, which is fine. But if you’re using a back-of-the-envelope system to track your data, it’s probably not doing you any good. Instead, start tracking your results using the dashboards available with some of the social media management tools mentioned in the previous bullet point. Alternatively, you can track your results on a Google spreadsheet that can be viewed (and edited) by other members of your team. It’s surprising how things improve once they’re tracked consistently and once people are held accountable for results.
  • Narrow your focus. Many businesses jump into social media and spread themselves over a wide variety of platforms too quickly, which reduces their ability to run effective campaigns. If you believe you’ve spread yourself across too many platforms, it might be a good idea to scale back focus to only a handful of platforms. Once those platforms are running effectively, you can always scale back up. Remember, it’s better to do a great job on three platforms than it is to do a mediocre job on 10.

Before we move on to the next chapter, let’s take a look at the key concepts and action steps we’ve covered in this chapter:

  • Key concept—Dell was one of the first companies to figure out how to use a social media platform to drive incremental revenue to their business.
  • Action step—Explore ways that you can use the Dell Outlet model for your business. That may require an e-commerce landing page, which many businesses don’t have. Even so, become familiar with their model because it’s the foundation for much of what we’ll be discussing in upcoming chapters.
  • Key concept—Not all social media campaigns are designed to make money. Some are designed to save money.
  • Action step—Are you using social media as a customer service tool? Perhaps you’re using social media as a way to reduce churn. No matter how you’re using social media, you should be making calculations about how it’s impacting the bottom line on your business.
  • Key concept—Reframe your thinking about social media.
  • Action step—If your thought process around social media begins with tactics (Twitter, Facebook, Google+, and so on), do a flip-flop and start thinking about goals and objectives first. From there, you can move on to your strategy to help you accomplish your goals and objectives. Once you’ve worked through all of those, you’re ready to move on to the tactical side of the equation.
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