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How to Calculate the ROI of Your Online Community

Written by Joshua Paul | on January 29, 2013 at 8:30 AM

On the surface, the ROI of any business strategy seems straightforward. Revenue and operational savings minus the costs of the initiaive gives you a rough return on investment, right? Not quite.

The bad news is that caluclating the return on your investment in your online customer community much more complicated. The good news in that getting the ROI for your online community is more complicated in a way that allows you to both capture the real value that your private online community brings to your organization and make improvements in your approach where necessary.

Business Impact of Online Customer Communities

It is mostly common knowledge that online customer communities can have a measurable impact on the following areas of your

organization's financials:

How to Calculate the ROI of an Online Community
  • Increase the annual sales per customer
  • Attract new customers
  • Reduce support and other operational costs
  • Increase productivity of employees

Each one of these metrics contributes to the return on your investment in your online community strategy. It is important to have an understanding of how you are going to calculate your community's ROI during the customer community planning processes so that you can begin measuring the right things with active members of the community, lurkers, and customers who do not join your online community (your control group).

The process for how to calculate the returning on investment of your online customer community is too dense for a simple blog post, but here are three key takeaways from the discussion that you don't often hear about:

Measure Online Community ROI Over Time

It is important to run your ROI formula over time to get the cumulative return over the life of the community. Your private customer community could have a negative 5% ROI today, but be heading in the right direction since you had a negative 29% ROI just 3 months ago.

Online Community Costs Are Frontloaded

The costs of creating an active online community for customers or members are largely frontloaded. These include online community software, consulting, and promotion. Many of the investments are made at the beginning of the process, making the ROI during the initial phases of your customer community's life low or negative. The lesson here is to be patient and really understand your ROI data model so that you know the performance will get better if you continue with your strategy.

Don't Forget About the Bonuses

There are several factors not included in calculations of an online community's return on investment. The most noticeable is the product and service innovation that comes from being closer to your market. Understanding your market's problems more clearly can make a tremendous different in your business, as you are able to create more profitable offerings.

The best metrics for marketers to track the ROI of their online customer communities.

Topics: Engagement

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