When selling products or services to companies, “what is the ROI I can expect from your solution?” is a primary question that one needs to answer. While we are still in the prototype stage of developing the Kalivo service, I will attempt to begin to answer that question here. I expect that our answer will evolve over time as our beta customers begin to use our service and provide us with feedback and ideas.
By ROI, typically this means that the prospect is looking for a hard, measurable dollar amount against which they can compare the investment in your product or service. This is in contrast to a a soft value proposition, where it can be logically argued that a return exists even though it cannot be truly measured.
Suffice it to say, we strongly believe that using Kalivo will generate significant value for our customers. Key value drivers that come from a company using Kalivo to engage with its communities on the Web and provide an interactive corporate community include:
- increased customer loyalty,
- recognition of market thought leadership,
- greater awareness
- improved brand perception, and
- higher search engine rankings and website traffic.
However, it is imperative to prove that the ROI exists as well and necessarily provide a means for measuring it.
Let’s start with what Kalivo does for a company. Using Kalivo, a company can now persistently monitor all content on the Web and identify the content that is relevant for that company, including things like positive and negative product/service feedback, and industry best-practices that may be valuable for that company’s customers. The company can also respond to the feedback with comments of its own, and track the ensuing conversation. Furthermore, with Kalivo, the company can repurpose the content that it finds relevant for its own customers within a community that it hosts, thus helping it maintain a constantly fresh community whereby it can establish a thought-leadership position in the minds of its customers.
How does one measure the hard dollar return on all of this good stuff? Quite simply, hard dollar returns for companies translate into profits in the form of either increased revenue, reduced costs or both. It’s business, not rocket science. Let’s ask the questions ….
- How does Kalivo increase a company’s revenue?
- How does Kalivo reduce a company’s costs?
Kalivo’s ROI drivers usually impact both revenue and costs simultaneously.
These drivers can be largely boiled down to the following:
- Increased customer retention and follow-on sales
- Increased customer referral sales
The more value a customer derives from a relationship with a company, the more likely they are to continue to purchase its product or service, and other products and services that fit their needs. They trust the relationship. Furthermore, their process for your value proposition is already embeded in your product or service offering, making the cost of switching high.
It may go without saying, but the cost to both retain and sell to existing customers is dramatically lower than the cost to acquire or re-acquire a new customer. I believe it has been estimated that acquiring a new customer costs about 5 times more than retaining an existing one. An oft cited statistic also proves this point – A 5% increase in customer loyalty can boost profits by 25% to 85%. New revenue is coming in from repeat and additional purchases, plus marketing costs are going down since the customer already has a relationship to the company it is not costly to find them. Each repeat purchase and new purchase from an existing customer is more profitable than the first purchase.
An example from The Service Profit Chain will help prove this point. As a result of seeing increased customer complaint letters, MBNA, the credit card company, reduced its customer defect rate to about 50% of the industry average between 1982 and 1990. In that timeframe, their profits increased sixteen times and they moved from #38 to #4 in their industry! This was all done with no acquisitions in their core business.
A company’s satisfied customers become some of its best sales representatives. It is as simple as that. In fact, the more satisfied they are, the more likely they are to successfully refer the company’s products or services on to others. The result of this activity is increased revenue from referral sales and cost reduction since you are not paying these people to be your sales reps, nor are you paying for identifying potential leads. OK, so that sounds obvious. Consider the opposite though.
What if you have dissatisfied customers? Well, they are about 2 times more likely to tell others about how dissatisfied they were with a company’s product or service. This is a death spiral. Not only is the company losing potential revenue, it is also increasing its acquisition costs as it has to overcome these negative perceptions to acquire customers. Customers empathize with their peers and are more likely to believe them than the company itself. Consider this quote from a recent Fast Company article:
The emergent power of those collective judgments shows up in a 2006 survey of “opinion leaders” by Edelman, the huge international PR firm, which found that 68% of respondents rated “a person like yourself or your peer” as the most credible spokesperson about a company. That number has tripled since 2003. What’s more, 36% of respondents said that if they don’t like a company, they go online to say so.
This word-of-mouth, whether positive or negative, is powerful. Embracing and extending the customer voice is now more critical than ever to growing your business.
The issue is that these are suppositions until proven in action. Our early adopters need to believe in the logic of our value-drivers and that as a result the ROI will be attainable. With Kalivo, we expect customers to attain increases in customer retention and loyalty, repeat and follow-on sales, and referral sales. These increases will present themselves in the form of revenue and profit growth.
Our pledge is that we will take every effort we can to enable our customers to measure the hard-dollar returns that Kalivo is providing to them. Like any relationship, we will require cooperation to track these metrics, as it will all not come directly from the Kalivo system. It is not only vital to our customers that they know this information, it is part of our mission to ensure that we are creating measurable value for our customers.
We will only know if we’re fulfilling our mission by meausuring the return we deliver for each of our customers.
PS: I highly encourage all business people whether in a service or produces business to read The Service Profit Chain. The findings are powerful and do transcend the service sector. Many statistics in this post were pulled from Chapter 4: Rethinking Marketing.