How to Calculate the ROI of Online Communities

By Richard Millington

Chapter 10.10  LinkedIn  Google Plus
ROI People

Imagine you take two groups of newcomers to the organization. You give one group access to the community. They can ask questions, read information, and increase their knowledge with real interactions with customers.

The other group you train as normal.

Then you see how long it takes each group to reach full productivity.

Time-to-full productivity can mean one of two things. It can refer to the time it takes a new recruit to ably complete every aspect of their job role as measured by their manager. Or, it can refer to the time it takes a recruit to reach an equivalent level of performance as their closest colleagues. Essentially, it means how long it takes a newcomer to be proficient in their job.

This metric is important. The quicker a new recruit can get up to speed, the less money is wasted in their salary time. An online community, as we noted above, can really help achieve this.

This is both the simplest and most complicated formula we cover here.

To measure this, you need the following:

  1. Average employee cost per week for a group exposed/encouraged to use the community.
  2. Time-to-full productivity of exposed group (in weeks).
  3. Average employee cost per week for a group not exposed/encouraged to use the community.
  4. Time-to-full productivity of non-exposed group.
  5. Total number of recruits given access to the community per year.

Community ROI Template

You can drop these figures into this spreadsheet here or follow the process below.

Step One: Measure Time To Productivity of Recruits Exposed To The Community

A community’s influence on time to productivity can be measured via before and after analysis, or by exposing certain groups to the community and comparing results with groups who were not exposed to the community.

This latter requires listing job tasks or estimates from their boss estimating their ability to perform the job, as well as nearest colleagues or against the job specification. The time to productivity is the time taken (often on a weekly or monthly basis) until every box is ticked by the recruit’s direct manager, or the direct manager believes the recruit has reached 100%.

The total amount of time it takes to reach 100% is the time-to-full productivity we measure here. Therefore, the first thing we want to measure is time-to-full productivity and the average salary of recruits.

screenshot-2016-09-02-11-09-57

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Step Two: Determine the Time To Productivity Cost Per Recruit Exposed To The Community

For this to work, we assume a linear state of progression. This means if the employee took 10 weeks to reach full productivity and was paid $1,650 per week, we would assume that the first week they were 10% productive, the second week they were 20% productive, the third week they were 30% productive, etc. (If the employee took 13 weeks, we assume a 7.7% improvement each week.)

Thus, in the first week the organization lost $1,485 in lost productivity per recruit, $1,320 in the second week, $1,155 in the third week, etc.

The total cost is thus the % of salary lost during this time multiplied by the salary paid during this time.

Calculating the % of salary lost is difficult. We need to use a progressive formula of:

% of Salary Lost = (N (N + 1) / 2) / (N^2)

N = Time-To-Full Productivity

This complicated-looking formula essentially calculates the average % of a recruit’s salary lost each week until they become fully active. More data on arithmetic progression can be found here. Each week, the % of a staff’s salary is combined and then we get an average.

Note that the shorter the number of weeks to full productivity, the higher % of a staff member’s salary is lost. This percentage alone is misleading, but is an important metric to calculate.

What matters is the cost when we multiply the % of salary lost above by the total salary paid over this period. This reveals the total amount of salary lost in the time it took a recruit to reach full productivity.

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Step Three: Determine Cost Saving Per Recruit

We can now easily calculate the cost saving per recruit exposed to the community and multiply this by the number of recruits who have access to the community over this time period.

This is calculated by deducting the productivity cost of recruits exposed to the community from those that are not exposed to the community. We can then multiply this figure by the number of recruits to determine the total value saved via improving the time-to-full productivity through the community.

In this simple step, we simply calculate the costs of the community as per the previous methods and deduct this cost by the annual value saved above.

screenshot-2016-09-02-11-12-01

Note that this figure relies on many assumptions and, in practice, calculating the average is likely to be much more complex. Not all progress is linear and the averages are likely to leave greater margin for error. However, an estimate backed by data is always superior to an assumption.

Summary

  1. Time-to-full productivity measures how long it takes a new recruit to get completely up to speed.
  2. A community (internal or external) can help reduce this time by providing a place to ask questions, get answers, find information, and understand how to communicate with members.
  3. Measuring time-to-full productivity means you need to run a test where half the group is exposed to the community, while the half is not. Then you can make comparisons of lost time.
  4. Now determine what % of an employee’s salary is lost and multiply this by the number of recruits to get an idea of cost savings.
Reduced Recruitment Costs Cost Per Hire

Reduced cost in hiring and training a new staff member
  • Advertising for hires
  • Qualifying hires
  • Reduced training costs (time and expense)

 

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