Although there's no formula yet for measuring the ROI of word-of-mouth marketing, there are some factors to consider.

Will 2005 be the year of the mouth? The seeds have been firmly planted through press coverage, trend reports and media analysis; buzz builders are among us; and marketers are drinking the word-of-mouth Kool-Aid. In particular, word-of-mouth marketing has proven to be a valuable way to reach the over-stimulated, ever-changing, often elusive, yet ready-and-able-to-spend 13- to 25-year-old audience. Media buyers and marketers alike are scrambling to get a WOM program while it’s hot, but are constantly dealing with one small hitch.

Nobody is quite sure how much it costs.

“What is the value of a conversation?” is a common and fair question in the media industry, a discipline marked by numbers and formulas developed to justify media spends. As 360-degree marketing straddles analytics and social behavior, the keepers of the budgetary keys are trying to figure out what to pencil into the WOM line. Media buying agencies know how to calculate the value of a banner ad, taking into account the number of eyeballs seeing the ad, whose eyeballs they are, what the content near the banner is, and how many people click on the banner. 

Is there a formula for word-of-mouth? Not yet. However, methodologies are being developed to value conversations on a CPM basis. 

Authenticity

Whose word is more valuable -- Britney Spears’ or your best friend’s? If one of my colleagues tells me she loved 'Spanglish,' but the New York Times tells me it’s more vapid than 'Daredevil,' who am I more apt to believe? The first way to value a word-of-mouth interaction is by considering its relevance to the individual. The more honest, pure and trusted the conversation is, the stronger the impact. At Bolt, an unsolicited and unconscious peer recommendation would be awarded the highest CPM. Rewarding the recommender would lower the CPM. Having WOM ambassadors talk to people they don’t even know would lower the CPM further. All of these interactions may be valuable, but their interactions are valued differently.

Connectivity

According to research conducted by the Consumer Electronics Association in December 2004, 72 percent of teens want what their friends have. So, it’s worth a lot to inspire a conversation between two people who have a lot of friends, isn’t it? Media buyers ask themselves, if Nike can reach the quarterback of the football team right before practice with a message about a new high-performance cleat, how many banner ads does this equal? Within the word-of-mouth industry, marketers have a range of methods for identifying the most connected, most active, most influential individuals in a group. As an industry, we’re striving to articulate our methods clearly so they can indeed contribute to the valuation of the conversation.

Context

In order for a conversation to make sense, it must be contextually relevant. Think about it, if you’re a teenager hanging out on gaming sites all day long, you’re much more apt to talk to your friends about a new artist with a track in your favorite game than a new sandwich at Burger King. As marketers are trying to place a value on a conversation, it’s vital to consider where, how and for how long the conversation is taking place. Are people mentioning the product in passing or raving about it in their blogs? Are they in an environment where a purchasing decision is top-of-mind? Is the content consistent with the context?

Medium

If the communicator is the same, conversations in person are more valuable than conversations taking place over the phone. People are generally more engaging face-to-face than they are on the phone. The same could be said of phone conversations vs. online chats. Email endorsements are great, but on the whole they are less of an impact and therefore, less valuable than verbal conversations. 

The industry has not developed a formula to value conversations. We can’t tell you to take three parts authenticity, one part connectivity and 1.5 parts content and multiply it by a $30 CPM to figure out your spend, but at least we’re closer, as an industry, to figuring out what the formula’s ingredients are. As media buyers, you need to pay close attention to: authenticity -- who is talking to whom and for what reasons, connectivity -- how many conversations actually occur, context -- why is a given community talking about your product, and lastly, medium -- where are these conversations happening?

BTW, you guys should see 'Meet The Fockers' -- I thought it was better than 'Meet the Parents.' Loved it.

Quick, what was the CPM of that last sentence?

Aaron Cohen is CEO of Bolt Media.