In marketing text books, Customer Lifetime Value (CLV) is definined as “the present value of the future cash flows attributed to the customer relationship”, and is calculated something like this:
CLV = (Sale value) x (Estimated Number of times customer will reorder) [adjusted for Net Present Value]
However, this doesn’t tell the whole story. Social Media is so commonplace that all of your customers are now publishers, and are influencing each others purchases like never before. As Brian Solis points out, Social Capital is also very valuable.
So the Social Customer Lifetime Value (SCLV) would be worked out something like this:
SCLV = CLV + CRV
CRV is Customer Referral Value. It is essentially a combination of the Social Capital, i.e. the influence, a person has, and how likely they are to advocate your products and services. It is impossible to work out precisely, but a hugely important part of deciding how valuable a customer is to your business in the new social economy.
CRV = (Social Capital) x (a form of the Net Promoter Score)
This would represent the amount of purchases that a customer has created due to her influence on others. (NB I would score Net Promoter Score from -5 to +5, so that detractors actually detract value. That would more closely represent the true value, in terms of +ve or -ve future cash flows)
Some thoughts on this:
1. You can spend more to acquire a customer with a high SCLV
2 .You can spend more on servicing the account of someone with a high SCLV
3. Someone’s Social Capital may increase over time: maybe look for people who’s capital is on the rise and make sure they are more likely to promote your product (they are also the people less bombarded by PR people)
4. You can actually do things to increase a customer’s Social Capital and therefore their SCLV: for example, by highlighting her on your company blog or website, by giving her the scoop on latest news, and generally making her more valuable to her community etc.
5. Customers with high CRV may need to be treated differently to customers with high CLV.
6. A customer may not be spending much on your products or services, but their influence on others may mean that their true SCLV is high. Perhaps the high spenders are not always the most vocal about it?
7. Negative SCLV is of course also a possibility. Simply “dropping” a customer with a negative SCLV is not an option, but working out the ways to stop them detracting value, and turn them into advocates, is important. Especially those customers with high Social Capital.
Rather than debating the ROI of social marketing, I think we should be talking about how much we can spend to service our customers and potential customers. As part of a Social CRM program, SCLV represents the true value of a customer or prospect, and it should be used to aid decisions about resource allocation.