Your company’s reputation is an essential part of your business’s success. Customers and consumers are likely to ensure your business is reputable before they agree to use your services or purchase your product. The better your reputation, the more likely you will retain existing customers and attract new ones. However, keeping a good reputation for your business is not always easy and can occasionally require contracting a team to help manage your company’s public image.
While a reputation management team is beneficial to promoting a positive public reputation, it is not without cost. Recruiting an online reputation management team involves using financial resources to acquire personnel and equipment necessary to equip your team so they can do their job.
Investing this time and money into a reputation management team might seem like a frivolous use of finances. Some products are effective enough to persevere on their merit, but every bad review makes a dent in the company’s reputation. However, a reputation management team can be essential to safeguarding your company against such backlash.
Before you invest in an online reputation management team, you might want to consider the ROI of such an endeavor. This is a reasonable stance but could prove difficult if you are unfamiliar with how such calculations work. This article will help clarify how to calculate the ROI of such a team for your business.
What is an ROI?
Whenever you fund a new product, service, or team for your company, you are investing in its potential to turn a profit. This is how business works and where the age-old idiom “you need to spend money to make money” originates. This is referred to as a “return on investment” and is built on the principle of making more money than you spend to fund this new part of your business. The return on investment (ROI) is deceptively easy to calculate and involves a series of mathematical equations that take numbers you likely know intimately to solve. Calculating your ROI depends on whether you are looking for an annual ROI or an ROI for a single period.
The ROI is calculated as a percentage by adding the current value of the investment to the income generated by the investment subtracted by the investment amount. You then divide this number by the initial investment amount. You would then multiply the final number by 100 to find the ROI. For example, let us say you invested $200.00 in a new product you sell for $250.00 a unit. The formula would be:
(250 – 200) / (200) x 100 = 25%
This means your product gets a 25% return on your investment annually, making a fairly unwise investment. Bear in mind that this is an extremely simple version of the equation that does not incorporate how many units were successfully sold and is merely a general outlook on how the formula works.
A more detailed example would be if you purchased a share of another company’s stock for $500.00 with a buyer’s commission of $10.00 and received a dividend of $5.00 every year you own the share. Then you sell the share for $1,000.00 with a $10.00 selling commission. This time, the formula would be:
(1,000 + 5 – 500 – 10 – 10) / (500 + 10 + 10) x 100 = 93.3%
As you can see, this is a far more successful investment than the $200.00 product we mentioned earlier, but it factors in more key details compared to the initial example. However, we need to determine how the ROI formula applies to investing in an online reputation management team.
See What the Damage is
The first step to calculating the ROI of an online reputation management team is determining how much you are losing due to a poor public image. The most recent statistics show that a reputation greatly affects how much business you see annually. Thanks to online data, it is extremely easy to write articles bashing you and your company that the entire country can see. These articles draw your customers’ attention, old and new, and can drive them away from you. Recent research has shown that companies with articles like this written about them can lose a substantial amount of business.
- 1 negative article can cost you 22% of your annual business.
- 2 negative articles can cost you 44% of your annual business.
- 3 negative articles can cost you 59% of your annual business.
When these articles cost you over half of your annual business, it is worth checking how much that costs you. To calculate how this affects your income, you need to Google your company and see how many negative articles come up on the first page of the results. The first page of results is the most important since over 50% of Google users never go past the first page unless they have to. Only 13.6% of Google users ever hit the 4-page mark.
Let us say, for example, that you have one negative result on the first page of Google, and the formula would be as follows:
22 / (100 – 22) = .28
This means one bad article costs you 28% more customers than you currently have. Let us take things a step further and say that you gained an additional 100 customers this year. The approximate number of customers you would have had would be:
100 x .28 = 28
Losing 28 customers might not seem like a huge deal, but if the average customer earns you $6,000.00 in revenue, you will lose out on $168,000.00 in gross earnings. One article can cost you hundreds of thousands of dollars, meaning finding a way to combat the negative articles can be very important to your corporate success. However, articles are not the only reputation killers on the internet.
Reviews are another important part of your reputation, especially with the Yelp website producing thousands of new reviews daily. Harvard conducted a study that determined that every star added to your Yelp score can yield a profit increase of between 5% and 9%. Harvard’s researchers also discovered that 92% of customers are reluctant to purchase products or retain services from a company with less than four stars on Yelp. You need to do a little more math to determine how your Yelp score affects your ROI.
Let us say that you currently have a 2-star rank on Yelp. This means you are three stars away from a perfect score, which helps determine how much revenue is being lost. The formula would be as follows:
((5-2) x 0.07) x 100 = 21%
A 2-star rating on Yelp costs you 21% of revenue annually. If your annual income is $2,500,000.00 a year, the dollar amount lost will total $525,000.00 in gross income. This loss of gross income would also need to be combined with the lost income from the negative article, meaning you are losing $693,000.00 before taxes and expenses. This is no small amount, but whether it is worth investing in an online reputation management team remains to be seen.
What Do You Stand to Gain?
Before we can properly calculate the potential ROI for an online reputation management team, you need to determine a crucial detail. Much like the gas station owner in No Country for Old Men, you need to know what you stand to gain on the coin toss of hiring an online reputation management team. While Javier Bardem is not involved, this can still be an extremely stressful question since it can determine your company’s ability to survive. The first step in answering this question involves your marketing techniques.
Let us say you allocate $100,000.00 a year for marketing campaigns such as commercials, billboards, and sponsoring influencers on Instagram and YouTube. Let us also assume that these marketing efforts get you an additional 500 customers a year. This means every new customer costs you $200.00 to secure. However, these numbers do not apply to companies that use inbound marketing techniques offered by online reputation management teams.
Inbound marketing generally triples the number of customers you reach, so a $100,000.00 marketing budget would earn 1,500 new potential customers. This drops the cost to a mere $66.67 per new potential client. Now let us assume that you average a 10% close rate with your customers. Without inbound marketing, you would be securing 50 sales out of 500 customers. With inbound marketing, you would secure 150 sales out of 1,500 customers.
We mentioned before that the assumed value of your customers was $6,000.00 per successful customer. With 50 new sales, that is a gross of $300,000.00 annually, whereas the inbound numbers provide a staggering $900,000.00 annually. Not only do you stand to gain more from an inbound marketing campaign from an outside reputation management team, but you also spend more trying to accomplish the same with an in-house team. However, we must now address the question that brought you here and determine the ROI for an online reputation management team.
What is the Total ROI?
This question requires us to put together all the numbers from our hypothetical business, which, for convenience’s sake, we will henceforth refer to as Genera Corp.. If you, as the president of Genera Corp., are considering recruiting an online reputation management team, you need a budget. Determining how much you want to allocate to your reputation management firm is extremely important in determining the return on your investment since this budget is the investment in question. So, for simplicity, let us assume you are willing to allocate a generous $65,000.00 budget for your team. This serves as the base for the ROI equation.
The equation for the total ROI of this endeavor requires you to add the lost revenue with the potential earned revenue and then subtract the campaign cost. You then divide by the campaign cost and multiply the result by 100 for the percentage.
In Genera Corp.’s case, this would be:
693,000 + 900,000 – 65,000 / (65,000) x 100 = 2,350.77%
With the heavily idealized numbers provided in the examples we have drafted, we have produced an exorbitantly high ROI for the online reputation management team. The real numbers will likely not be close to this and will likely average at around 500% ROI. However, by combining what is being lost with the revenue you could be earning and then removing the cost of the investment into the team, you can easily determine what you stand to gain with your investment.
Now that we can determine the ROI of an online reputation management firm, there is only one thing left to do. You will need to figure out where to find a firm that can handle your campaign needs that fits with a budget you can afford.
Take Your Reputation Back
Investing in something like your company’s public image is always a daunting prospect. The views of your customers will drastically affect the success you enjoy as a corporate entity and the profits you stand to gain. Before investing in any resource, product, or team, you will need to know if it will cost you more than it can earn you.
While investing in your reputation is always a good idea, you might need to focus your finances on another aspect of your company. However, these equations should give you the information you need to determine whether an online reputation management team is in your best interest. If such a team seems like it will pay off, you might be wondering where to find a quality firm.
Fortunately, we at Reputation can help you with your company’s public image. We offer a wide array of services to help keep your reputation clear and help attract new customers while retaining the old. We can help with review management, identifying negative articles, purging those articles, and much more. We also offer an itemized billing service so you can select the services you need at the frequency that suits your marketing budget. So, if you want to invest in a team, check our website and see how we can help. With us, your investment will help you take your reputation back!
Do you have any questions about how to measure the ROI of an online reputation management investment? Or perhaps were you curious about the services that we offer that could greatly assist your reputation? If you answered yes to either question, please feel free to reach out and contact us at any time! We’ll gladly answer any questions you have on the topic and would love to go into further detail about any and all of our services available to you!