How to Calculate the ROI of Online Communities

By Richard Millington

Chapter 10.5  LinkedIn  Google Plus
ROI People

An online community can yield considerable innovation and research benefits to an organization. Even if your community was not created as a research or innovation vehicle, you can still create the value of the community by extracting value insights from the community.

These insights come in two forms: those which are solicited and those which are unsolicited.

Solicited feedback
  • Interviews
  • Surveys
  • Questionnaires
  • Polls
  • Direct questions
Unsolicited feedback
  • Trends
  • Audience profile data
  • Complaints
  • Requests

An entire industry has developed around market research online communities (MROC). The goal is to harness the collective sentiment, wisdom, and creativity of an audience to generate useful product ideas. However, while these might be core drivers behind an organization’s push to develop a community, they are not the only research and innovation benefits.

However, these benefits are among the most difficult to fully capture in a financial metric. These benefits fall under two categories: 1) Those which have a clear equivalent cost (e.g. undertaking research in a community compared with focus groups) and 2) Those which yield a superior performance (e.g. resolving problems faster, improved time to market for new products, or development of new product ideas).

Research/innovation benefits fit in 2 categories: those with clear equivalent cost & those with superior performance

 

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The former proves relatively easy to quantify. We first identify the cost of undertaking research to gather qualitative and quantitative insights through other forms (e.g. focus groups, surveys, research, etc.) and then contrast this with gaining comparable insights within the community. This can be on a ‘per project’ basis or ‘cost per idea’ basis.

However, this treats all ideas as being equal. In practice, ideas from different sources might well vary in quality. Therefore, the organization might wish to further estimate the average quality of ideas from different sources, determine the difference, and adjust the measure of return accordingly.

The latter category is more complicated to accurately measure. You would need to compare performance against the community to determine the additional benefit created. This would not be a cost saving, but an additional benefit. We have decided not to delve deeper into this process here (although the value of ideas is an interesting metric). Instead, we have decided to use a simple process to determine the cost of solicited feedback.

To measure this, you need:

  1. Cost of feedback via the community (technology, staff, platform, overheads).
  2. Additional research-specific costs (software license, staff time, incentives to participate).
  3. Cost of undertaking research via equivalent methods (moderator, observer meals, respondent meals, recruitment incentives, recruitment, rooms, stationary video, computer rental, monitor, etc.).
  4. Number of research projects undertaken per year.

Community ROI Template

You can enter this data in this spreadsheet here or follow the process below.

Step One: Determine the Cost of Comparable Solicited Feedback

The cost of solicited feedback is the total cost of developing the community, the cost of developing and executing the method used to solicit feedback, and the cost of analyzing the data. However, this assumes that the purpose of the community is entirely to solicit research. This is often the case in market research or insights communities. Outside of this category (and in general practice), research is often an additional benefit as opposed to a core purpose.

As such, the total cost may already be factored into costs we have covered elsewhere (e.g. member retention). In this case, we would only use the additional cost of conducting interviews, surveys, polls, questionnaires, or direct questions in the community as opposed to other channels. For the purposes of our calculations, we assume that research for the community is used as an additional benefit.

At this point, we compare the much lower value of conducting an additional research project in the community against other methods. This would include the cost of software (polling software, survey software, questionnaires), the estimated full-time staff equivalent of conducting this survey (e.g. 50% of one person’s time for a month), and any miscellaneous costs (e.g. offering members an incentive to participate in the survey).

If we assume the cost of a single research project is a $200 software license, $3,125 in staff time, and $2,000 in incentives, the total cost of a single research project would be $5,325.

screenshot-2016-09-02-10-26-26

Step Two: Compare With Equivalent Methods

Now, we compare this with a cost of undertaking that research project elsewhere. This might mean a focus group, collecting surveys from research assistants in public, or scheduling and undertaking interviews with select participants.

We adapted a slightly older focus group example from 1998 as an example of what a research project might cost outside of a community.

screenshot-2016-09-02-10-27-35

Step Three: Determine The Difference And Multiply By The Number Of Research Projects Undertaken Via The Community

We can now subtract the cost of research via offline methods with the community to identify the cost difference per research projects.

We can now calculate the value of the community for research projects by multiplying this by the total number of research projects undertaken in the community, as shown below.

screenshot-2016-09-02-10-28-45

We can now assume a cost saving per research project of $2,935. This would be multiplied per every equivalent project. If the community has undertaken seven research projects in two years, the cost saving would be $20,545.

Note that this strictly assumes the research is directly comparable. If the quality of outcomes is not directly comparable, this must be adjusted by the comparable rating of the research. For example, if ideas from focus groups are rated as 4 out of 5 and, from the community, 3.5 out of 5, this is a 12.5% difference. The value of these ideas can be adjusted down by 12.5%. Hence, the cost saving would be $17,977.

Summary

  1. Many online communities have been created to yield innovation and insight. However, others can increase the value of their community by harvesting valuable insights.
  2. There are two types of insight: solicited and unsolicited. Solicited includes interviews, surveys, questionnaires, polls, direct questions. Unsolicited includes noticing trends, audience profile data, complaints, and requests.
  3. Measure the return of solicited insights is easy via cost comparison, while measuring the value of a good idea is more difficult (but not impossible, e.g. equivalent man hours to develop the idea).
  4. Measure the cost of a research project today against the cost of a research project via other method. Multiply this by the number of research projects to determine cost saving.

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