Calculating the Value of Online Reputation Management

Proof of How One Negative Review Can Result in Loss of 30 Customers

This article takes an in-depth look at the return on investment (ROI) for online reputation management.

How much does online reputation management repair cost?
Is it worth it?

Two crucial questions.

Figuring out the bottom-line investment necessary for online marketing and web presence building–whether it be for lawyers, financial advisors, executives, those in the art world, or small business owners–is crucial to calculate accurately.

Since an online repair process can take thousands of dollars and mean whether a business succeeds or fails, knowing the ROI is essential.

We’ll look at three ways to calculate the ROI for repairing a damaged reputation in detail, with actual numbers.
Basically, we find some amazing figures:

Building a positive reputation can generate $32,000 or more in sales.

Each negative link or review loses thirty customers or $30,000.

The loss over the lifetime to the business can be $60,000 or more.

Calculating the value of online reputation management can be applied using three methods, and combining one or all should give a good understanding of the real benefits in actual dollars.

This matches my experiences. I knew of one lawyer who, because of one negative review on RipoffReport.com, saw a loss of at least $150,000 in one year.

Return on Investment: The Basics

There are two sides to the return on investment (ROI) equation.
First, there is the actual benefit made from building a positive online presence and the resulting sales generated.

Second, there is the calculation of lost revenue due to negative content showing up on the first page of Google.

ROI for reputations can now be predicted using a few different approaches.

First, What is Online Reputation Management?

Online reputation management or ORM is defined as anything online about a business or business owner and ranges from content on websites that show up in search engines such as Google, social media channels, or images. 

This includes blog posts about the business or that were written by the business owner; comments on blog posts; websites; Tweets or Facebook likes; comments posted on Instagram, Pinterest as well as the image added there, and just about everything else online.

Goals of ORM: Build and Repair

There are two goals of online reputation management.

The first is to build or boost a positive online presence.

For example, if a client or prospective customer searches Google for information about a company but finds little there—minimal LinkedIn presence, no Twitter activity, no blog posts or articles—the prospect probably will move on to a competitor because they are not perceived as an expert in their field.

In this case, creating content and being active and engaging on social media builds their web presence and shows that they are an authority.  As a result, this builds trust and helps convert prospects to customers.

Second, if something negative appears, especially on the first page of Google search results, the goal is to remove or suppress it.

Usually, only about 10% of the time or less is it possible to actually delete something once it has been published.  For some local review sites such as Citysearch or a handful of others, it might be possible but for most, for platforms like Yelp and news sites, negative content or comments cannot be removed.

The best, most effective solution to combat a negative link is to inundate the web with good content.  This includes blog, image, and content creation and sharing this on social media platforms.

Value of Positive Online Reputation Management Repair

Businesses with a positive online reputation generate more site traffic. This converts to additional sales.  It also means more phone calls, visits, and inquiries as well as more repeat transactions over the lifetime of the business.

On the other hand, a negative reputation leads to lost income.  If one or more negative link shows up on the first page of Google, the prospective client will not only move on to a competitor, and they probably will never return as a customer–ever.

The goal here is to measure both the loss of a customer due to a negative link and to determine the value that a new customer brings—only then can a business decide whether online reputation management is beneficial to them.

Formula 1: Calculating Return on Investment For Reputation Building

The first method looks at the value that each new client brings to the business.
To do this we:

1. Calculate how much each new client spends per transaction.
2. Estimate the average number of business transactions for that client.
3. Determine how long a client stays with the business—is it a month, a year, or several years?
4. Then find the number of site visitors per month.
5. Evaluate how many visitors actually become a customer: this is the conversion rate.

After reviewing these five factors, it’s possible to calculate the overall value a customer represents for a business.
For example, using real numbers for a professional law or finance consulting service:

1. New client spend=$1,000.
2. Number of yearly transactions=2.
3. Client stays with the business=4 years.
4. New visitors per month=100.
5. Conversion rate= 2%.

From this we get the lifetime value for each new customer:
$1,000 x 2x 4=$8,000.

1. Then we calculate that the site generates 100 new visitors and that two converts to become customers, or 2 x $8,000=$16,000.
2. The income would be $16,000 for this project.
3. The online reputation management repair must cost less than $16,000 to break even or ideally cost less than $2,000 per month for six months.
4. Or, if new visitors doubles to 200, then the income doubles to $32,000.
5. Clearly, if the online reputation management repair cost is $12,000 and generates $32,000 in sales, it is worth the investment.

Formula 2: One Negative Review Equals 30 Lost Customers

Now let’s look at the other side of online reputation management, and determine how much revenue decreases due to negative links.
In this case, calculating how much money is lost will determine the value of online reputation management for a business.

There are two approaches.

First, based a Convergys Corp. Study, one single negative online review can cost the business an average loss of 30 customers. 

This can result in a very sizable decrease in income for a company and is usually devastating.
The calculation for this would be:

1. Determine how much the customer spends for the service.
2. Multiply by 30.
3. This equals total revenue lost.

For example:

1. Customer spends=$1,000.
2. Multiply by 30.
3. Total revenue lost=$30,000.

In this scenario, if one customer is worth $1,000 to the business, one negative post equals a loss of $30,000.

If the repair process costs less than $30,000, the business should clearly go forward with the repair project.

Formula 3: Lifetime Customer Loss Calculation

Or, drawing inferences based on the, “Cone Consumer Influence Study,” there is another way to calculate the ROI for the repair process.

1. Take the average sale amount.
2. Identify the number of lost customers per review.
3. This equals total revenue lost.

For example, if the average sale is $1,000, and a number of lost customers is ten, then the lost revenue would be $10,000.
However, a more accurate determination is to look at the losses over the lifetime of the business.

This would be:

1. Take the average sale amount.
2. Determine the number of lost customers per review.
3. Identify the number of negative reviews.
4. Calculate a number of years a client.
5. This equals the lifetime lost revenue.

For this example:

1. Average sale amount=$1,000
2. Number of lost customers=10
3. Number of negative reviews=1
4. Number of years a client=3
5. Lifetime lost revenue=$30,000

Here, if the average sale is $1,000, the customer remains for three years and number of lost customers is ten, then the lost revenue would be $30,000.

If the repair process costs $30,000 or less, the business should clearly move forward with the repair process.

Or take the case where there are two negative reviews:

1. Average sale amount=$1,000
2. Number of lost customers=10
3. Number of negative reviews=2
4. Number of years a client=3
5. Lifetime lost revenue=$60,000

Here, if the average sale is $1,000, the customer remains for three years, but if there are two negative posts, then the number of lost customers is twenty, resulting in double the lost revenue of $60,000.

If the repair process costs $60,000 or less—most average between $10,000 and $20,000– the business should clearly move forward with the repair process.

Note that these represent the average gains or losses and could vary based on the position of the negative item showing up in Google, the relative power of the link, how many comments or social media engagements there are, etc.

Summary

There are three ways to calculate the return on investment to see if online reputation management is worth the cost:

1. ORM Building
2. One Negative Review Equals 30 Lost Customers
3. Lifetime Customer Loss Calculation

Each formula has its own benefits, but in general, if the average customer transaction is about $1,000, then:

The benefit to building a positive reputation can generate $32,000 or more in sales.

The loss can be thirty customers or $30,000 for each negative review.

The loss over the lifetime to the business can be $60,000 or more.

Obviously, the costs could be much higher.

The Bottom Line

Using a combination of all three rates of return (ROI) calculations should provide a fairly accurate monetary value for both revenues gained due to building a positive online reputation as well as money lost due to negative reviews.