As a business owner, you’re looking at online reputation management like any other investment — you’re keen to get involved, but only if it offers clear ROI for your business.
You’ve been pitched on the idea of managing online reviews, publishing digital content, and getting active on social media. Sure, it would be nice to do those things, but what value do they actually provide your business?
There are two sides to the ROI equation and I’m going to walk you through both — the estimated lost revenue from negative articles and Yelp reviews and the potential earned revenue from a positive online presence and increased sales.
Estimating Lost Revenue:
The latest research suggests that businesses risk losing 22% of business when potential customers find one negative article on the first page of your search results. That number increases to 44% lost business with two negative articles, and 59% with three negative articles.
The bottom line is that a negative online reputation leads to lost revenue. If there is a negative result or a bad review showing up on the first page of your Google search results, potential clients are going to stop calling and move on to a competitor.
But just how much revenue are you losing? At what point does an online reputation management campaign make sense for your business?
As long as you know how many clients your company serviced this last year, and how much revenue each client is worth to your company (life time value), it’s actually pretty easy.
Here’s how to figure it out:
STEP 1: Measuring impact of negative results
Do a Google search for your company to see how many negative results show up. If your own name is important for business, then you will want to look yourself up online as well. This is particularly relevant for CEOs, entrepreneurs, real estate agents, lawyers, and doctors.
If you have no negative results, then move onto STEP 2.
Otherwise fill in this formula. We’re taking the percent of average lost customers for businesses in your situation (X), and finding out what percent more of customers you could have had (Y).
It’s WAY easier than it looks, I promise.
Y = X / (100 – X)
Stay with me — I’m already giving you X to plug in!
X = 21.9 if you have 1 negative result on page 1
X = 44.2 if you have 2 negative results
X = 59.2 if you have 3 negative results
X = 69.9 if you have 4 negative results
So if you have 1 negative result on page 1, it would be:
Y = 21.9 / (100 – 21.9)
Y = 21.9 / 78.1
Y = .28
Easy, right? So with 1 negative result on page 1, you could have had 28% more clients than you have right now.
To get your missed clients (MC), simply multiply your current number of clients (C) by .28 or whatever percentage you get in the above formula.
MC = C * Y
Let’s say you still have one negative result, so we’re working with .28 from above. And let’s say your company earned 179 clients this year.
MC = 179 * .28
MC = 50.1
So you missed approximately 50 clients this year. The last step is to determine how much one client is worth to you so you can measure the missed revenue. In other words, what is their lifetime value to your business?
To find your missed revenue ($$), we simply multiply client lifetime value (LTV) by the number of missed clients (MC) from above.
$$ = LTV * MC
Let’s say each client is worth $5,600 in revenue to your company.
Using the 50 missed clients from above, it would be:
$$ = 5,600 * 50
$$ = 280,000
At a 40% profit margin, you missed approximately $108,000 in profit this year thanks to your negative search results.
Armed with this knowledge, it becomes much easier to gauge the value of an online reputation management campaign for your company.
If you’re being quoted a $75,000 ORM campaign, you know you can estimate a 44% ROI if your business stays exactly the same. The ROI will, of course, increase as you attract more clients and as you boost the number of people finding you online — which is exactly what we’re going to figure out next.
But first… let’s measure the impact of your negative Yelp reviews.
STEP 2: Measuring lost revenue from bad Yelp reviews
Bad Yelp reviews can seriously impact revenue. According to a Harvard Business School study, every one star increase in a restaurant’s Yelp rating means a 5-9% increase in revenue. And 92% of people hesitate to do business with companies with less than four out of five stars.
How many stars away from 5 are you?
Here’s a formula to estimate your business’s percentage of lost revenue due to Yelp reviews:
% Lost Revenue = (5 – Star Rating) * .07
Every one-star increase means a 5-9% increase in revenue. So by subtracting your star rating from 5, we determine how many times we should multiply by .07 (in between 5% and 9%).
If you have a 2.5 star rating, you’re 2.5 stars away from 5. You would multiply 2.5 * .07 = .175.
That’s 17.5% of lost revenue. If your total revenue for the year was $1,000,000, you would do:
.175 * 1,000,000 = $175,000 in lost revenue
At a 40% profit margin, you missed approximately $70,000 in profit from negative yelp reviews.
Adding that $70,000 to the $108,000 in missed profit from your negative search results gives us a $178,000 return, or a 137% ROI on a $75,000 ORM campaign if your business stays exactly the same.
Before we can finalize our ROI estimate, we need to also take into consideration the positive effects online branding will have on your business.
Estimating Potential Earned Revenue
Your business’s biggest problem is not money. It’s not the economy, and it’s definitely not your pricing. The answer is almost always lack of attention.
If clients have never heard of you, you’ve automatically lost their business. How can they buy your products if they don’t know who you are? It won’t happen.
That’s why sales reps who use social media as part of their sales techniques outsell 78 percent of their peers. And it’s the same reason marketers who prioritize blogging are 13 times more likely to enjoy positive ROI. By getting useful content in front of potential clients, you’re able to broaden your sales funnel and fill up your pipeline.
But just how much revenue do you stand to gain? There are two ways to estimate your potential earned revenue from an online branding campaign, depending on what data you have.
Option 1. If you have outbound marketing data
For this, you’ll need to know 1) your annual outbound marketing budget 2) how many leads you get per year through those efforts and 3) the percentage of leads you turn into sales.
Marketing Budget / Leads = Cost Per Lead
Let’s say your annual marketing budget is $75,000 and your traditional marketing efforts bring you 500 leads per year. That’s $150 per lead.
Inbound Marketing yields 3 times more leads per dollar than traditional methods.
So for the same $75,000 budget, you’d earn 1,500 leads per year. That’s $50 per lead.
To determine your ROI, you have to determine what percentage of your leads turn into sales, and what each customer is worth to your company.
Sales = Leads * Close Rate
Let’s say you have a 10% close rate. With outbound marketing, you’re getting 500 * .10 = 50 sales. With inbound, you’d be getting 1,500 * .10 = 150 sales.
Revenue = LTV * Sales
If your customer lifetime value (LTV) is $5,600, you’re earning $5,600 x 50 sales = $280,000 per year in revenue with traditional outbound marketing. With the same budget spent on inbound marketing, you instead earn $5,600 x 150 = $840,000 in revenue.
At the same 40% profit margin, that’s $112,000 in profit for outbound compared to $336,000 in profit for inbound (a difference of $224,000). For a $75,000 marketing spend, that’s a 49% ROI with outbound marketing compared to a 348% ROI with inbound marketing. That’s a huge opportunity cost for your business.
Option 2. If you have in-house Inbound Marketing data
$0.25 of every dollar spent on content marketing in the average mid-to-large B2B firm is wasted on inefficient content operations. It’s no surprise, given that the average B2B firm spends an extra $120,000/year on headcount to produce the same volume of content as a firm that invested in content efficiency.
The bottom line is that B2B firms lose when they try to do content marketing in-house. It’s like a law firm trying to build its own website instead of outsourcing to web development experts. The inefficiency cost is enormous.
For this measurement, you’ll need to know your current in-house inbound marketing budget, and how much money you’re spending on salaried marketing employees.
Wasted Money = Budget * .25
Let’s say you currently have a $20,000 inbound marketing budget, and you’re spending $50,000/year for 2 marketing employees — a social media manager and a content writer.
Your employee cost is $100,000 + inbound marketing budget of $20,000 = $120,000.
Wasted Money = $120,000 * .25
Wasted Money = $40,000
That’s $40,000 wasted purely on inefficiencies. That means you’re actually only getting $80,000 of work for $120,000.
ROI = Wasted Money / Budget
ROI = $40,000 / $120,000
ROI = .33
So you’re getting a 33% return on investment, simply by switching your in-house marketing operations to a professional firm. You can think of it two ways: either you spend the same amount and get an extra 33% of work or you get to cut your budget by 33% and get the same amount of work done as you’re doing in-house.
Putting it all together.
To estimate the complete ROI of an online reputation management campaign, you’ll need to combine the answers you get from estimated lost revenue from negative articles and potential earned revenue from a positive presence and increased leads.
(Lost Rev + Potential Earned Rev) / Campaign Cost = Full ROI
Let’s say you missed an estimated $178,000 profit this year due to one negative result on page 1 from STEP 1 and the 2.5 star review on Yelp from STEP 2. If you were the business with outbound marketing data above in Option 1, you’re likely missing another $224,000 in profit by not hiring a professional branding and ORM firm. So for a $75,000 branding campaign, you would estimate a $403,000 increase in profit, or a 437% ROI.
You’ll need to work with your online reputation management firm to find a custom campaign that accommodates everything you’re looking to achieve. Once you’ve figured that out and determined the cost of the campaign, you’ll be armed with the data to stop the guesswork and start estimating the real ROI of your online branding campaign.
Originally published on Forbes.com.