October 18, 2010

Social Media Truthiness, And Four Metrics That Truly Matter

Here's an example of the truthiness we're forced to navigate each week:
  1. Facebook Sharing Is Worth 6x As Much As Twitter Sharing.
  2. Twitter Crushing Facebook's Click-Through Rate.
Who do you believe?

Both articles, of course, demonstrate the problem with using faux metrics to make a business argument.

Yes, both articles are right. Both articles, however, only pertain to the exact circumstances and timeframe that the studies were conducted in. When we publish this kind of research, we delude folks, we mislead them, we ask people to suspend reason in order to accept the argument that the author is selling to us.

Always ask yourself ... "What is the author selling to us, and why is the author selling it?"

What always matters is what works for your business.

And what matters for your business are tactics that cause customers to generate incremental profit.

There are four metrics that are consistently linked to profit. Three metrics are directly linked to short-term profit. One metric is directly linked to long-term profit.

Metrics directly linked to short-term profit.
  1. Annual Retention Rate: The percentage of last year's customers who purchase again this year.
  2. Spend per Repurchaser: Among those who are retained, how much did these customers spend?
  3. Profit per New Customer: Total customer acquisition profit divided by the number of newly acquired customers.
And a metric directly linked to long-term profit.
  1. Number of New + Reactivated Customers: The number of new customers acquired in the past twelve months, plus the number of lapsed buyers who purchased again in the past twelve months.
Carefully parse these social media and mobile and e-commerce and e-mail and catalog marketing and digital marketing articles. Identify the exact conditions where the research is likely to be accurate. Then do what is right for your business.

The four metrics I outlined above are never going to lead you astray. They are old-school metrics that stand the test of time, and they are directly correlated with company profitability.

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