How to Calculate the ROI of Online Communities

By Richard Millington

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ROI People

While some internal communities have the specific goal of saving time, others have the more explicit goal of improving performance. An online community can improve the performance of staff by better sharing of best practices, coordination, and specialization in individual roles.

Online communities improve staff performance with better best practice sharing, coordination and role specialization

 

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However, there is no clear performance metric other than overall employee productivity ratios.

For example, it is possible to measure the revenue generated per employee or costs incurred by employee and compare this figure by the number both before and after the community. This is simply revenue generated by the organization (or a specific group) divided by the number of employees within the organization.

Another option is to use costs incurred by the organization divided by the number of employees within the organization before the community and then after the community. However, both of these methods are very blunt tools by which to measure very specific improvements. Instead, we need to isolate and identify specifically which outcomes we expect to improve and measure those outcomes.

Back To The Widget Factory

Ultimately, the problem in measuring improved performance is first identifying what performance means and whether that is a cost saving or additional revenue generated. There is an exponential number of things we can measure and ways to measure them. This takes us back to the worker in the widget factory dilemma.

Imagine a worker in a factory can produce 40 widgets per hour. We can quickly divide the cost of the worker by the number of widgets to determine the cost per widget. Now, assume the worker joins a community or practice with others who make similar widgets and learns more efficient methods. This knowledge would help the worker now produce 50 widgets per hour. If the worker is paid $30 per hour, the cost per widget just dropped from $0.75 to $0.06. This is a cost saving of $0.15 per widget.

If the worker produces 350 widgets per day, this saves $52.50 per day. If we assume she works 240 days per day ($12,600) and the company employs 300 similar workers ($3,780,000), the cost savings rise remarkably through sharing and institutionalizing best practices.

Or, we might assume that the worker is now producing an extra 10 widgets per day to sell. We might then multiply this by the number of workers, the number per day, and the average gross margin (profit) of the widget to get a total return.

A ‘widget’ here is a placeholder for whatever outcome we are measuring as a result of employee performance. Every organization has KPIs that they measure. This might be leads generated, sales closed, proposals sent, lines of code written, products created per period of time, etc. Instead of trying to analyze every possibility, we’ve written a template that you can use. This template assumes improved performance (extra widgets to sell) rather than reduced costs.

Community ROI Template

You can follow and adapt this spreadsheet here.

Step One: Determine the “What If”

First, determine would would happen if performance improved. How would you know performance improved? Would this be a cost saved or an improvement in a performance metric? Will you have more widgets to sell, or can you reduce the cost of creating widgets? This might depend upon market demand (e.g. Is there a market for additional produce?).

Step Two: Benchmark what non-members are doing/have done

The second step is to identify a means of benchmarking the current cost or performance either before the community was created, or by members who have not been invited to participate in the community. Direct metrics are best, while survey estimates are a useful backup.

Break this down by the value per member or value per KPI per person. This gives you a broad metric you can use to calculate the difference.

Step Three: Benchmark improvement from community members

The third step is to identify what community members are doing. In cost savings per employee or widget, what difference can you identify or can members self-identify. Break this down again by a single object or person and compare the value difference of each in order to identify the cost per unit/person difference between members and non-members.

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Step Four: Generalize across the community

Now multiply this by the number of units created or members involved in the community to determine the total benefit generated by the community. Remember, this might extend for several years previously and into the future, too.

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Summary

  1. An online community can significantly improve the efficiency of employees via sharing best practices, coordinating activities, and specializing in their field.
  2. This improvement might allow the organization to reduce costs or increase revenue (usually depending on their being a market to sell additional goods).
  3. There are an infinite number of KPIs an organization can measure. However, the process remains the same. Run an experiment or sample to determine the impact of the community and then multiply this by the number of people affected and the profit of the value produced.

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