How to Calculate the ROI of Online Communities

By Richard Millington

ROI People

Customer Acquisition

The second primary method by which organizations generate increased revenue from an online community is to increase the number of customers. There are several methods by which an online community can help generate additional customers. These include:

  1. Lead Generation. Lead generation refers to the number of leads generated by the activity. A lead is typically an individual or company who has expressed an interest in the organization’s product or services and has provided their contact details. In a community context, a lead might be every member who has joined the community or individuals who have undertaken specific purchase-intent related activity. The stronger the purchase-intent activity, the stronger the lead. Once a lead has been proven to have buying power they typically become a prospect (although terminology often differs). Lead generation includes increasing search traffic and customer advocacy. A lead is typically an individual or company who has expressed an interest in the organization’s product or services and has provided their contact details.
  2. Lead Identification. Lead identifications refers to methods the organization employs to identify leads as a result of the behavior they perform in the community (or behavior influenced by the community). If an organization knows people who watch three videos and attend two webinars are more likely to buy, they can identify members in the community who perform that behavior. Likewise, a community member might highlight a problem that the organization’s products or services can solve. The sales team already know they have a warm lead and a problem they can focus on solving.
  3. Lead Conversion. Lead conversion is the % of leads who convert into paying customers. The number of leads who become customers is influenced by the quality of the lead (Do they have a pressing problem the organization can solve? Do they have the ability to make buying decisions? Do they have the resources to purchase the product?) and how the lead is nurtured (quality of contact with the organization). An online community may improve lead conversion by connecting prospects with existing customers who provide quality testimonials, reviews, guide people in what they should buy, providing further information about the products, and via social proof (seeing others using/liking the organization’s products/services). This is sometimes referred to as ‘assisted buy and sell’.
  1. Lead conversion time. This is the length of time it takes to convert a lead into a customer. In addition to improving the % of leads that become customers, the community may also improve the speed at which a lead does become a customer. This speeds up growth for the organization. It allows sales staff to convert more sales over any given time span.
  2. Advocacy. Customer advocacy is a form of lead generation in which existing members refer others to become customers of the organization. This is often referred to as organic growth. Customer advocacy is often believed to be the most cost-efficient approach to growth as it reduces marketing spend and scales with the size of the organization. An online community often generates dedicated advocates who, as a result of their community affiliation and sense of identity, refer their friends to join the community and become customers (or share community content to others). Advocacy can take place online or offline. It can also be facilitated (e.g. giving members a bonus to invite friends) or unfertilized (natural occurrences of advocacy. Customer advocacy is most commonly measured by the Net Promoter Score (NPS). However, while the NPS can be a good indicator of growth, it does not directly tie into growth. Advocacy would also include the reach (or mentions) of the brand in any online channel. By cultivating community advocates, the organization might significantly increase its reach. This would improve awareness and lead to increased sales.
  3. Net Promoter Score. The Net Promoter Score (NPS) refers to a management tool which asks a single question “How likely is it you will recommend our product, organization, or service to a friend or colleague?”. The responses are measured on a Likert scale from 0 to 10. Those that score 9 or 10 are perceived to be promoters (those likely to promote the organization to others), while those that score 0 to 6 are perceived to be detractors (those likely to speak negatively about the organization). Those in the middle are considered neutral. The NPS is the number of promoters less the number of detractors. It is sometimes believed the NPS is most closely correlated with business growth, although this has been challenged.
  4. Search engine optimization and traffic. Search engine optimization refers to the quantity and quality of an organization’s website pages in search engine ranking pages (SERPs). The greater the quantity of pages indexed and highly ranked for relevant terms, the greater the quantity and quality of visitors to the organization’s pages. This increases the number of leads likely to be generated. Online communities help by creating a large number of pages that will be indexed by search engines and community activity is widely believed to be a factor in how pages are ranked. Communities can also help develop content which is superior to comparative content and thus ranks higher. However, recent Google updates such as Panda and Penguin may penalize websites with a large number of low-quality pages (for example, thousands of empty profile pages or low-grade discussions) or duplicate content.

We have included the benefits listed above in the following table.

Benefits List

Customer Acquisition

Attracting new customers to the business

Lead generation.

# of leads generated by activity

Lead identification

Customer advocacy

Net Promoter Score (NPS)

Search engine traffic and search rankings

Lead conversion

% of leads who convert into paying customers

Lead conversion time

Visit to lead %

Lead to customer %

Assisted buy and sell

Chapters

Share

 LinkedIn LinkedIn

 Google Plus Google+