How to Calculate the ROI of Online Communities

By Richard Millington

ROI People

Executive Summary

We often struggle to prove the tremendous value of community work. As a result, successful community teams have seen their budgets cut and staff contracts terminated. We need to do much better.

We often struggle to prove the tremendous value of community work. As a result, successful community teams have seen their budgets cut and staff contracts terminated. We need to do much better.

In our research, we uncovered hundreds of methodologies to calculate the value of community. Unfortunately, few of these methodologies would survive scrutiny. On rare occasions when ROI is calculated, correlation is often presented as causation, costs are ignored, and attribution is an afterthought. More worryingly, contribution (i.e. how much of increased revenue is profit) is rarely considered and customer lifetime value is skipped over entirely.

Community practitioners today overvalue and undervalue their communities. We overvalue a community when we ignore costs, attribution, and contribution to profit. We undervalue a community when we ignore customer lifetime value and focus on a single benefit at the expense of many. A community might increase call deflection, but it will also improve customer satisfaction, increase retention, and generate a better knowledge base.

We found most community professionals do not track metrics that matter. Posts are a bad proxy for profit. We need to venture beyond Google Analytics and collate data from different databases, departments, and sources in order to prove value. This is the biggest challenge we face in measurement today.

We also need to better understand the difference between return, profit, and ROI. Each serves a purpose. We need to become more street-savvy in communicating the value of a community and increasing that value. Too often, we rely on metrics without context, or wait for the value to be questioned before we attempt to prove it.

In this project, we have explained the problems in calculating ROI, detailed a process that survives scrutiny, created a spreadsheet package we can use to drop in numbers to determine the value, and highlighted methods to successfully communicate value. The work you do is valuable and it is time to prove it.

Our deepest thanks to SAP who have sponsored and supported this entire project.

Thank you,

Richard Signature

Richard Millington
Managing Director
FeverBee.com

 

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