Today, we’re starting a series on social media for small business. We’ll kick it off by focusing on how small business owners can drive business value with social media.
By definition, entrepreneuring is about creating value. So let’s talk about three levels of value.
Level 1 – Business Value
Business value can be simply stated as:
Value of Your Business = Cash Flow ÷ Cost of Capital
So increase your cash flow and you’ll increase the value of your business! Social media can help you with that.
Level 2 – The Value of a Customer
This defines value further by looking at the value of a single customer. The equation is:
Value of a customer = (Sales – Costs) ÷ Cost of Capital
As you can see, this is simply a variation of the first equation but it helps further define how value is created.
Value is created one customer at a time! Social media is great for one-to-one interactions.
If we take all the sales to a single customer over the life of that customer and deduct all the costs of serving that customer, we have the cash flow from that single customer. From that, we can derive the value today of that single customer.
Of course, if you add the value of every single customer together, you get the value of your business.
We’re back to Level 1!
Level 3 – The Value to the Customer
Entrepreneurs know that they create value for themselves by creating value for their customers. So it’s helpful to understand how customers define value.
Value to the customer = Benefits ÷ Price
By benefits, we mean the quality of your product or service as well as the level of service you provide.
The real opportunity for entrepreneurs usually lies in increasing the benefits. If you increase the benefits while holding the price stable, your customers will perceive more value in their relationship with your business.
That’s where the magic happens!
Your customers will spend more and sing your praises. It’s the most cost-effective way to grow your business!
Social media creates Level 3 Value
Social media may not change the quality of most products or services. However, it can always improve the level of service you give to your customers.
For example, social media can help you get to know your customers better so they know you care about them, not just the money they spend with you.
With social media, you may become aware of a customer with a need that you can’t serve. But someone in your network can. By connecting the two, you add value.
Social media can help you resolve complaints so you keep more customers. You may even get them to spread the word about you and your business.
With social media, you can share your expertise to add value to your relationships.
When you exceed your customer’s expectation, they can easily share the word about you through social media. And you can easily find out about it and say “thanks” to show your appreciation.
Level 3 Value leads to Level 1 Value
Social media can help you increase the value that customers place on their relationship with you (Level 3 Value). When you do that, it’s likely that your sales will increase as will the value of your customers to you (Level 2 Value). It follows naturally, then, that the value of your business (Level 1 Value) will increase. That’s BIGG success!
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