How to Calculate the ROI of Online Communities

Another really critical metric to track is lead conversion. This is the number of leads who become customers. Lead conversion can be improved by increasing the quality of leads who become prospects or by improving the conversion funnel.

Measuring lead conversion is complicated. The people who join and participate in an online community may inherently be more likely to convert into customers. This creates a challenge in proving causality. Did the community improve lead conversion, or do the leads most likely to convert join the community anyway? This is the challenge we need to disentangle.

To measure lead conversion, we need to run an experiment and put together a few data points. Specifically, we need:

1. Number of people ‘exposed’ to the community (group A).
2. Number of people ‘not exposed’ to the community (group B).
3. Percentage of leads ‘aware’ of the community.
4. Total number of leads.
5. Average order value.
6. Average purchase frequency.
7. Average retention rate.
8. Average gross margin.

Step Two: Generalize Across the Group

It’s tempting here to multiply the 3% increase by the number of leads and average contract size to determine the total value obtained. However, this assumes that each of these leads was at some time exposed to the community during the purchase decision. In reality, this is unlikely to be the case. Many might not even know the community existed. Yet, at the same time, we cannot simply sample how many of these joined the community, as many might browse without registering.

A more effective method is to first determine what percentage of leads knew the community existed. This can be achieved via a poll or survey during the lead nurturing process and multiply this by the total number of leads generated. This will show us how many leads were aware of the community.

Now, we know in month 1 that 66.2% of leads knew the community existed and it increased their likelihood of converting by 3%. We can now multiply the total number of leads that knew the community existed by the 3% influence it had on their likelihood of converting in order to determine the number of additional leads which were converted.

This tells us that, in the first month, an additional 3.38 customers converted into clients because of the community. The next question is to work out how much each client is worth. This is relatively easy to do.

Step Four: Multiply the value per client by the number of additional clients

This is a simple step. We multiple the values above by the number of additional clients we gained as a result of better conversion rates. We can then calculate this value per year, too.

We can now see that the community generated an increase of $4,305 as a result of improving lead conversion in the first month and $46,878 in the first year.

In practice, it is unlikely a community is created solely to convert leads. However, calculating this increase can be a useful return to demonstrate the value of community.