With digital transformation accelerating, online and offline businesses rely on their online reputation for success. Consumers are now faced with more choices than ever before and, bombarded by huge amounts of information daily, can be unsure what to select.
It’s unsurprising that 97% of all shoppers rely on feedback from other customers to inform their purchasing decisions. Whether you’re investing in a third-party reviews platform or utilising free channels such as Google My Business, Facebook, or Yelp, how can you measure the ROI (return on investment) from customer reviews?
Calculating ROI from customer reviews
It’s notoriously difficult to measure ROI accurately. It may be that a review from over a year ago with pictures or video has convinced a shopper to buy. Or, a response to a negative review may have impressed a customer enough to drive a purchasing decision. Using reviews is a long-term strategy. Having several years of reviews is seen as more trustworthy than a sudden burst of reviews posted in the space of a week or so.
Here are a few methods to calculate the ROI – or loss of revenue – from reviews.
- Use an ROI calculator
For an easy way to measure your return on investment, the customer reviews platform Feefo has an ROI Calculator that can give you an idea. You can input your monthly metrics and Feefo will provide an estimate based on their expertise.
You’ll need to know:
- Your orders
- Your visitors
- Your average order value
- Monthly Google Ads spend (if applicable)
- Monthly Facebook Ads spend (if applicable)
You’ll then receive an email with your results.
2. Calculate lost opportunities
One way of calculating the ROI is by calculating lost opportunities caused by negative reviews. SEO tool site Moz suggests that by typing your business name into Google (using Incognito mode) and counting the number of negative results on the first page of search results, you can use the following general metrics to gauge lost revenue:
- 1-2 negative results = 22% revenue loss
- 3 negative results = 59% revenue loss
- 4 negative results = 70% revenue loss.
- Look at reviews analytics data
If you use Google My Business or Yelp for gathering reviews, both platforms have analytics to demonstrate leads generated in any given time period. Google My Business reporting shows you which actions were taken as a result of customers looking at your page and revenues including:
- Visits to your website
- Direction requests
- Phone calls
Similarly, Yelp shows you the number of customer leads generated and views of your page as well as an estimate of revenue generated.
- Calculate manually using a formula
This method requires a bit more mathematics.
First, calculate the monthly investment in reviews. If you’re not using a paid-for reviews programme, you can measure the time spent on monitoring and managing reviews in terms of hourly wage. Next, calculate the monthly leads generated from your reviews (use option 3 to do this). Calculate your monthly average customer spend as well as customer visits per month.
Then, calculate your lead conversion rate using A = B/C. Where:
A = Conversion rate
B = Converted leads
C = Total leads
Once you have this total (for example, 50%), use the following calculation:
Estimated Revenue = Total leads x Average customer spend x Number of monthly visits per customer x Conversion rate.
Let’s try and simplify this with an example using figures.
- Total leads = 200
- Average customer spend = £50
- Number of monthly visits per customer = 2
- Conversion rate = 50% (0.5%)
Estimated Revenue = 200 x 50 x 2 x 0.5 = £10,000.
So, £10,000 is your estimated revenue, indicating that revenue marketing is delivering £10,000 of value per month.
To calculate your ROI from reviews, use the normal ROI formula:
ROI = (value of investment – investment cost) / investment cost.
If your investment cost is £2,000, your ROI calculation would be:
ROI = (£10,000 – £2,000) / £2,000 = 4.
This means that you receive £4 back for every £1 you spend on investing in reviews.
While this is a complex way to do it, you can automate these calculations in Google Sheets or Excel and simply fill in the key data for each month at the end of each period to calculate your ROI. Remember, the metrics you’ll need are:
- Estimated monthly revenue from reviews
- Monthly total leads
- Monthly average customer spend
- Number of monthly visits per customer
- Monthly conversion rate.
Getting to grips with your customer data can help you get a better picture of your ROI from reviews. Whether you invest in a third-party reviews platform or choose to manage your reviews manually, you should be aiming for a positive return on investment and ensuring your reviews strategy is working for you.