How to Calculate the ROI of Online Communities

By Richard Millington

ROI People

Cost of Investments

Fortunately, it is far easier to determine the cost of investment in a community than a social return. The investment combines the costs incurred directly from the community and the indirect costs originating from broader overheads. However, while it is much easier to determine the cost of investment, it is not easy.

There are three key challenges in calculating the investment in a community:

  1. Collecting data. Collecting data usually requires an internal sponsor with access to figures spent on individual staff members and hardware/software costs. It also requires access (or the goodwill) of a staff member in the finance team who will decide what % of the organization’s overheads are allocated to the community and on what basis (comparative staff time or % of direct expenses, etc.). There may also be concerns over data and staff privacy. Salaries are often confidential within organizations and should not be widely shared. This might mean using the less accurate ‘average staff member’ salary instead of the exact figure for each staff member.
  2. Making accurate estimates. It is difficult to estimate what % of an individual’s time is spent on community-related tasks. These estimates are prone to bias or overlooking key problems. For example, a team meeting of 10 people discussing the community may have a cost in total staff time of $500 ($100 per hour per person). Yet, this is hard to estimate without knowing the salary of the 10 staff members in the room. For our purposes, we’ve used a process of asking staff members to estimate what % of their time they spend on the community. This is prone to many biases.
  1. Amortizing. Finally, it is difficult to decide whether costs should included when incurred (e.g. investment in a community platform or buying a server), or whether costs should be amortized over the lifespan of the community. Amortizing is an accounting term. It is typically used to spread the cost of an asset over a designated span of time. This is important for us, as many organizations spend a significant amount to set up a community platform. If large purchases are included upon purchase, the initial investment will appear large and ensure the ROI of the community will be negative for the first year or two. This could also lead to decisions based upon sunk costs rather than future returns. However, if the costs are amortized over the lifespan of the community (for example, three years), there is no guarantee that the community won’t incur additional costs before or after then. On a balance sheet, hardware costs are usually regarded as an asset and thus only the depreciation of these costs should be included.

Key Investments Required

In this section, we have outlined the common costs an organization will incur when developing an online community. We have tried to distinguish between one-time costs, which you may wish to amortize, and ongoing costs.

This is covered over the following pages.

Chapters

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