Measuring the ROI of Online Communities

Many of the key benefits of online communities are measurable.

None of these should be your objectives, but they should be used to justify the costs of an online community. Remember all these are derivatives of a successful online community, not it’s purpose.

This isn’t comprehensive, but covers what most organizations are looking for.

Return on Investment for Online Communities
- ROI = (Return attributable to the investment – Investment) / Investment
- Return = Increased revenue + reduction in costs
- Investment = Time, resources, People

Increase in revenue

In theory, you can measure increased revenue by overlaying your sales before your community activities with the sales for the comparative time period since you began your community activities and marking up the difference.

In practice, your online community is too entwined with your business' dozen other marketing efforts (not to mention the rebounding economy) to attribute any number to the community.

The easy mistake is to chalk all sales through the community as a community benefit. This is misleading, it overlooks that many members will have purchased the products anywhere. It doesn’t show the benefits.

Membership fees. Do you charge membership fees to be a member of your online community? Is it part of your service package? You can count this income here.
Direct sales of products. Are you selling products directly through the community? This is a great return figure. However, be careful, most communities begin with loyal customers who would have purchased from them anyway. You need an average of purchases from the community less purchases through the alternative sales channels.
Other revenue streams. Easier to measure. Do you sell community-branded products? Organize events? Take a percentage of members selling products through your community? Include these here.
Increased page views to website. Does your community increase page views to your organization’s website? Do you measure your funnel from new visitors to customers? Then you should be able to put a value to every page view and assign a number accordingly.
Mentions elsewhere. As per above, track other mentions of your community that lead to measurable number of visits to the business website. Each can be assigned a value as per the page views above.

Clearly, direct sales (namely, repeat purchases) are going to be the key sales figure here. Be careful to clearly demonstrate that the community has encouraged members to purchase more frequently. Demonstrating this loyalty is the key figure.

Reduced costs

This has to be a tangible number that your business can assign to your community. If you can cut staff because you’re getting less calls, then that is a reduced cost.

Reduced costs include:

Reduced marketing spend. When a member is in your online community you no longer need to spend money on direct marketing, PR campaigns, or advertising to reach him/her. Calculate the typical marketing cost of acquiring a customer and multiply it by active members of your online community.
Reduced support staff spend. If your online community does a fantastic job of answering questions about your product, you can link to that from your online community and measure if you receive less calls. Can you reduce staff costs here?
Reduced recruitment costs. If you can find enthusiastic, knowledgeable and skilled staff through your online community can you reduce the money you spend on recruitment companies?
Feedback/Ideas generated. This is difficult to measure. How do you put a value on good product ideas generated through your community? You can’t. You can gain comparative costs from focus groups or assign a tangible contribution to a product that improved it’s expected sales, but that’s all.
Reductions from other crowdsourcing. What else has been crowdsourced? Have your members taken on any other work? Has there been a clear reduction in costs as a result of any crowdsourced work by the community?

Investment

Investment includes the people, time and financial costs tied to this online community. We will ignored the fixed overheads and opportunity costs for now. Your CFO can add them in later.

Community staff. This covers the salaries/pay of the staff involved in running the online community.
Time. How much time have other people needed to commit to this community? You need a rough figure of hours from anyone involved from your marketing team, legal team, management, etc… multiplied by their hourly rate to give an accurate number here.
Resources. This includes the additional costs linked to the community. Did you hire an agency to create the community platform? Are you paying for hosting? Did you host community events? Do you give your community products to use, etc?

There are a lot of assumptions here. The problem is many things are too intangible for direct measurement, others are several layers removed from the return.

What isn’t included in this?

Future/Present values. The money you spent on this will be worth less tomorrow.
Opportunity cost. What else could you have done with the investment? Massive marketing campaign perhaps?
Sense of unity. Your customers like each other. That increases loyalty to the brand that united them.
Premium brand. Thanks to the positive image created by the community, can you charge a premium?
Value of feedback. Not all feedback is equal, this doesn’t account for that.
Cost of not creating a community. Imagine if your competitor had persuaded all your customers to join their community first. Lucky you got there first.
Competitors. Your competitors find it harder to poach your customers now.
Overheads. Nasty things, overhead. Your CFO will assign this better than I can.
Future value of the community. Unlike most assets, communities appreciate in value. The work you put in this year will pay off better next year.
The biggest benefit of your online community. It improves your business outlook incredibly, this isn’t included – pity.
Non-profits/social good. Organizations that don’t sell a tangible product/service wont have a direct relevance to this.

Naturally, everyone has a different perspective of the ROI of an online community. I hope this helps add to the debate. Good luck.