Whitepaper

The

of Highly Successful Social Companies

Part 1 of 3
Kontagent was one of the first companies to build analytics around user behavior. Our kSuite analytics platform provides real-time data on how users are connecting, interacting and behaving online. Today, we work with hundreds of companies and thousands of applications in the social and mobile space, giving them insight into their customers behaviors so that they can make better business decisions and maximize customer lifetime value (LTV). This whitepaper series highlights the top seven metrics that highly successful social companies focus on in order to better acquire, retain, and monetize customers in the new social Web.

Navigating through the maze of social data

We are witnessing an explosion in customer data. The evolution of the social Web has given us access to a wealth of informationfrom Facebook feeds to other social graphs but many of us do not have the right tools to find the data that is most relevant to us. In fact, a recent survey published by global management consulting firm Accenture found that 36% of managers feel the same, saying there is too much to process and that it takes too long to find relevant, actionable information.

These new-school metrics answer the following questions: What demographics and interests are profitable for my application? How social are my customers? How avid (or engaged) are my customers? How loyal are my customers? What keeps customers on my site/application? What behaviors are indicative of paying customers? How many of my fans are monetizing, and how much are they paying? Answering these questions will fundamentally change the way you measure and optimize your customer economics. Weve identified seven social metrics which have been formulated based on internal research working with hundreds of businesses that have chosen Kontagent as their social analytics platform of choice. This framework is a tried-andtrue way to look at your social business model, evaluate your customer economics, and ultimately optimize the lifetime value (LTV) of your customers. Leave page views to the Web 2.0 companies who are still struggling to gauge user behavior using Google Analytics, Omniture or the dreaded million-row Excel sheets.

If theyre fortunate, social companies have the infrastructure to store, process and query customer data. However, many of them are missing the key piece in turning database to decision-making: data science. Data science goes beyond data mining. Data scientists create the tools and models to interpret streams of data. They build and tune analytics to create dashboards everyone at a company can use to make better business decisions. Today, with the explosion in social and customer data online, this is a discipline that is in high demand and low in supply. Companies like Kontagent help clients make the connection. By providing the data science needed to make sense of the millions of points of customer interactions, our clients have the ability to interpret the most relevant patterns of user behavior within their website or application. These insights have helped them to optimize their customer economics.

Top 7 Social Metrics

1. Cost to Acquire Customer (CAC) 2. Virality (k-factor) 3. Average Session Length 4. Average User Lifetime 5. % of Paying Users 6. Avg. Revenue Per User (ARPU) 7. Avg. Revenue Per (Paying) User (ARPPU)

Customer Lifecycle
Acquisition

Engagement/Retention

Monetization

The top 7 metrics

Each of the seven metrics detailed in this whitepaper series can be understood from the point of view of where customers are in a typical lifecycle: acquisition, retention or monetization.

In Part 1, we look at two social metrics that make up the acquisition phase of the customer lifecycle: 1. Cost to acquire a customer (CAC) 2. Virality (k-factor)

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Social Metric #1: CAC

A.R.M. Funnel
Social Company Customer Lifecycle
The A.R.M funnel shows a typical customer lifecycle, which is comprised of three stages: acquisition, retention, and monetization. When you acquire a customer, you want to minimize the CAC.

CAC (Cost to Acquire a Customer)

What is CAC?
CAC is the total direct marketing cost to acquire a customer. By understanding the CAC, you can determine what resources you should allocate and invest in a customer, or customer segment, to get the best ROI. Sometimes this is as intuitive as saying, Target 18-25 year old males who like The Jersey Shore. Other times, its not so obvious which demographics or customer segments are going to like your product the most. Heres an example: You run a marketing campaign to attract women like Suzy, a 25-year-old living in Los Angeles, to make a purchase or take an action through your website or mobile app. If youre successful, it costs you $5 to acquire her as one customer. Now consider that Suzy is highly influential among her social circles. She not only likes what youre selling, but she passes that information along through a Facebook In the old Web 2.0 world, sales funnels were typically a singlesession step-by-step purchase process where marketers would look at aggregate page views to determine conversion rates. Now you need the ability to attribute cost directly to a specific customer in order to completely understand which customer segments to target for acquisition campaigns.
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How has CAC changed in recent years?

With the rise of the social Web, in many ways CAC is now easier to analyze when it comes to important demographics like age, gender, location and interests. But, its also more difficult to measure when it comes to attribution, or the tracking of CAC back to the original, unique customer.

viral channel. Four of her friends click on the link and they make purchases too. You have now improved your CAC from $5 for one customer to $5 for five customers. Are you tracking these types of viral channels so you acquire users like Suzy?

Optimize CAC
Its crucial to follow your users, or cohorts like Suzy, through the lifecycle of your application or purchase process. Here are some tips on optimizing the process so you ultimately lower your CAC. Soft launch your marketing campaign: If you are a direct marketer, when you first launch an application or website, its helpful to purchase an initial cohort of users to test and tune. Many marketers acquire users in emerging markets to debug their applications and analyze user behavior for a soft launch before officially launching in markets where CAC is higher. Its also important to test small buckets of different customer segments to understand which customers are the most engaged with your application or website. Standardize the names of your campaigns: Make sure your online marketing campaigns have standardized naming conventions that speak to what demographic or targeting parameters youre testing. By doing so, you will be able to quickly roll up by similar campaigns to get aggregate views. Heres an example using this format: CampaignLocation_Gender_Age US_Male_18-25 Get granular with your metrics: CAC is only one lever in evaluating your customer economics. Its important to be able to gauge the CAC from the ad level all the way up to an aggregate number. This way when youve arrived at the LTV for your user segments, you have the best insight possible into who your most valuable users are, and where to acquire more of them. Looking at CAC by more granular user segments will also allow you to tune your ad spend more quickly, and to target more high-quality users. Consider geography: Group and view your marketing campaigns by locations that share similar CAC ranges. Rather than looking at every single location in which youre acquiring users, group regions that are within similar CAC ranges. Its a more effective way to analyze customer performance if youre buying users in multiple locations or countries. Fine-tune your campaign: Always conduct A/B testing for your ad copy, online content, and landing pages. This will give you a good idea of whats working for your target audience, and what isnt. For the typical Facebook campaign, this is even more important, as the effectiveness of Facebook ads on a click-through or conversion basis typically drops after just a few days.

Key Questions to Ask Yourself: Optimizing CAC What volume of users can I realistically buy at certain CAC levels? Hint: This will require some test ad buys. What volume of users and gross margin do I need to make my social company profitable? What is my addressable demographic target market? What other companies are competing in the same space that could drive up the CAC? What is unique to my application/website that will give me a lower CAC or higher LTV? How much of a free branding/viral word-ofmouth marketing can I expect to lower overall CAC? Hint: This will require a separate strategy around branding/viral mechanic development. How can I successfully scale my user acquisition while maintaining user quality and optimal CAC?

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Social Metric #2: k-factor

A.R.M. Funnel
Social Company Customer Lifecycle
The A.R.M funnel shows a typical customer lifecycle, which is comprised of three stages: acquisition, retention, and monetization. When you acquire a customer, a customer with a high k-factor could help lower your CAC.

Virality (k-factor)

What is k-factor?
Each of the seven metrics detailed in this whitepaper series can be tied to k-factor. The term k-factor has its roots in epidemiology, or the medical study of the incidence, distribution and control of diseases. In the online world, k-factor is the rate at which viral messages spreads across social networks through viral channels and prompt action, either through a sale, application install or other unique goal event. Viral channels can be classified into two categories: Peer-to-Peer: A message sent from one person to another person within their social graph. Application-to-Peer: A message sent from an application or website a person uses to another person in their social graph. Viral channels can also be classified by direct or indirect channel: Direct Channel: A message sent from a person or application directly to another person in their social graph. Indirect Channel: A message sent from a person or application indirectly to another person in their social graph, e.g., through a news feed or notification.

How does k-factor affect my business?

You can effectively measure and optimize k-factor when you know and understand all the types of viral channels available and how effective they are for your application or website. Avid peer-to-peer or application-to-peer communication can spread like a virus, and the k-factor, or influence score of your customers is the most important indicator of how well youve incorporated viral mechanics into the clickstream of your application, page, or website and how avid your customers are about your product or service.

k-factor =

# of new users influenced to perform a certain action or goal total # of users who performed the action or goal for that day

For example, if a user sends 100 messages to their social network and 20 people respond and complete a goal, e.g., a sale, then the k-factor is 0.2.

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As Facebook and other social networks like Google+ continue innovating around social sharing, leading developers and marketers are also maturing in how they develop and bake viral mechanics into their applications and websites. For instance, social couponing sites like Groupon and Living Social, and flash sale and social commerce sites are great examples of social business models that are witnessing tremendous growth and success leveraging social and influence graphs to increase virality.

Normalize your time periods when looking at trending k-factor: In addition to lifetime virality, setting 1-, 3- and 7-day time periods is useful for evaluating the effectiveness of viral channels within customer segments. X-day virality: The number of users influenced to install the application divided by users who installed the application on day X, divided by the number of users who installed on day X. Here is an example: 1-day virality: Suzy installs your application on

In the social Web, virality is one key reason you want to look beyond the direct sale. Be cognizant of the behavior of key influencers, regardless of whether or not theyre paying customers. Building your avid fan base and incentivizing them to spread your message can be the difference between positive or negative ROI. A customer who spreads the word about your product or service and is influential enough to be an effective marketing unit for your company is very valuable. Think of the companies that provide free perks for social media mavens who have thousands of followers on Twitter, or folks with high Klout scores. They are the new-school influencers. You want to find and retain these people and keep them on your side. They will be the force multiplier for your company and organically build a strong following for your product or brand. They will increase your k-factor and decrease your CAC.

Monday. She tells 10 of her friends. Within 24 hours, five of these friends have also installed the app. Your k-factor here is 0.5. 3-day virality: By Wednesday, two more friends have installed the app, bringing the total to seven. Your k-factor is 0.7. 7-day virality: Within a week, one more friend has installed the app, bringing the total to eight. Your k-factor is 0.8. Build for meaningful social interactions: The days of spammy messages are over. Virality should be the result of a natural inclination for your users to share. In fact, you should work first on converting your users to fans before you think about asking them to share or invite people in their social graph. Engage and retain your customers and they will naturally share your product: Social companies should continually think of ways of incorporating viral mechanics around all points of a customer lifecycle. In addition to lowering CAC, virality can also be used deeper in the user lifecycle to tap into a more loyal fan

Optimize k-factor
Make sure you are attributing viral messages/notifications back to a user. Kontagent tracks all viral messages back to a parent user.

Understand your customers lifetime k-factor: Overall k-factor is the lifetime virality of a user or user segment. Depending on what viral channels you are measuring, this LTV is often reached in fewer than 24 hours for channels like news feeds. Other channels, such as Facebook notifications or messages, tend to be stickier as they remain present as long as a user hasnt checked their notifications.

or player base. Your most avid fans will be highly engaged and will want to spread your message and share their experience with friends. Those with high factors have a remarkable effect on retaining active users. Think of guilds in World of Warcraft or fashionistas on social commerce fan sites who have a large impact on their friends and followers.

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Key Questions to Ask Yourself: Optimizing k-factor How can I incorporate social sharing and viral mechanics into my application or website? When is the optimal time to introduce a viral message / sharing option? How can I measure k-factors influence on my CAC so I can take into account this free or earned traffic? How can I figure out who my most viral users are? How do I optimize for each different type of viral channel?

To request a kSuite Social demo or learn more about how Kontagent can help you increase customer acquisition, retention and monetization, email ksuiteinfo@kontagent.com or call +1 (415) 766-6500.

Conclusion
Companies like Kontagent are revolutionizing the way social data is consumed and customer economics are optimized across an organization. The ability to identify and act on massive amounts of data requires revolutionary ways of measuring online behavior. Measuring your customer lifecycle around acquisition, retention and monetization phases is the best practice in optimizing your customer economics. Understanding the top social metrics in each of these phases will drive the levers of your social business in the right direction and put you on the path to success. In Part 2 of The Top 7 Metrics of Highly Successful Social Companies, well explore the social metrics that are associated with engagement and retention, and why they are so crucial to your success.

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Toronto 67 Yonge Street, Suite 502 Toronto, ON M5E 1J8

Phone: +1 (415) 766-6500 Email: ksuiteinfo@kontagent.com

Kontagent is the leading enterprise user analytics platform for application developers, marketers and product managers across the social and mobile Web. Kontagent tracks more than 1,000 social applications, over 150 million monthly active users, and in excess of 15,000 messages every second. Our proprietary platform, kSuite, has been built from the ground up to harness deep data pattern visualization and analysis that provide our customers with valuable, actionable insights. Armed with this data, and combined with Kontagents team of data scientists, our customers have the power to better measure and optimize their customer economics and build a more profitable enterprise. For more information, go to www.kontagent.com.