How to Calculate the ROI of Online Communities

An online community does not just increase an organization’s top-line revenue, but it can also reduce its bottom line-costs. This typically occurs when a community can perform an activity cheaper in the community than through existing methods. As we mentioned earlier, some top-line revenue can also appear as reduced costs. These cost reductions might include:

1. Customer Support Costs. Customer support costs refer to all the costs the organization incurs to support its customers. The prime cost is the number of customer service staff required to handle questions and complaints about the product or service. The community could reduce these costs by sharing answers in the community so others can find them before calling the support line (or encouraging members to answer questions created by other members). The community may also create content which allows customer service staff to solve questions at the first attempt or answer questions faster. These activities are known as call deflection, first contact resolution, and average handling time.
2. Call Deflection/Indirect Call Deflection. Call deflection (which will also include email/instant messenger deflection) occurs when the community solves a problem before the customer has contacted a customer service agent. This encompasses two varieties of deflection: direct and indirect. Direct call deflection refers to questions which were solved by other community members (e.g. if my question was answered by another community member). Indirect call deflection refers to answers people found to their question in the community and thus didn’t need to post their own question.
3. First Contact Resolution. First contact resolution is the number (or percentage) of calls that a customer service agent was able to solve at the first attempt. The customer, therefore, didn’t need to call the line again. The community can help improve first contact resolution by identifying possible problems (and solutions faster). This can help prepare customer service teams for calls and questions they have not previously received. It can also highlight innovation solutions identified by other customers. This is also likely to improve the customer satisfaction score (CSAT).

4. Average Handling Time. The average handling time is the average length of duration of each call. The quicker a customer service team member can answer the question (and solve the problem to the customer’s satisfaction), the greater the volume of calls they are able to process each day. This should result in direct call savings over the long term. A community can improve the average handling time in the same way it improves first contact resolution, by unearthing new problems and solutions that agents would not otherwise have identified or known how to quickly solve.
5. Customer acquisition costs. Customer acquisition costs (CAC) refer to the total cost of acquiring a new customer. This might include advertising, direct marketing, public relations and other channels in the promotional mix. These methods are often expensive and lead to high CAC. For example, it might cost an organization $50 to acquire a customer via traditional methods. A community might provide an alternative and more cost-effective means of acquiring the same customer. The same customer matters here. This cost saving assumes the customer would be acquired via traditional methods or the community. Thus, if the community is the most cost-efficient channel, an organization reduces its costs by acquiring the customer through the community. If the community is acquiring a set of unlikely customers through traditional channels, this should be recorded as additional value generated.
6. Web traffic costs. Web traffic cost is the direct cost associated with attracting visitors to the organization’s website. This might include SEO costs, content creation costs, online advertising costs, and the ongoing maintenance of the website itself. Traffic might derive from promotional campaigns or via search requests. A percentage of web traffic will convert into buyers. Assuming traffic quality is comparable with other sources, traffic generated via community activities (content creation, etc.) may reduce the cost of generating this traffic.
7. Reduced knowledge creation costs. Members often share useful product or service knowledge which saves the organization’s employees from creating knowledge themselves. Knowledge creation costs (often under the vocabulary of tribal knowledge or global knowledge database) are the equivalent cost of the organization’s staff creating comparable knowledge. Community members often generate new knowledge and update existing knowledge which would otherwise necessitate considerable staff time to create (Wikipedia being the obvious example).
8. Reduced customer research and innovation costs. Customer research and focus groups are often expensive to run. A community can provide a more cost-effective means of undertaking comparable research. Communities can provide insight and research via direct request (surveys, interviews, online focus groups, product ideation) and insights via indirect methods (identifying bugs, providing unsolicited feedback, early alerts to potential problems, validating ideas, generating new ideas, trending topics), which would cost more to gather through equivalent methods. This is sometimes calculated by a comparable research cost or equivalent staff creation (person hours) cost.
9. Reduced recruitment costs. Recruiting staff is an expensive undertaking for many organizations. An online community might be able to reduce recruitment costs in three areas: cost per applicant, cost per qualified applicant, time-to-full productivity. An organization may first pay for advertising to attract applicants. This is incurred as a cost per applicant. The firm may also spend time reviewing each applicant, hiring a recruitment firm or a headhunt to ensure applicants are qualified. This is known as cost per qualified applicant. Once hired, a new employee needs to be trained to be a productive asset to the firm. This is the time to productivity.

Many of these costs can be reduced by the community. The organization can advertise to passionate and knowledgeable members in its community and qualify their ability and attitude by the prospect’s previous contributions to the community. They can use knowledge generated by the community to increase time-to-full productivity.

The full table of reduced costs is shown below.