Online Community – Moving Beyond Metrics to ROI

We gave a presentation on building ROI models for online communities at the Online Community Unconference in Mountain View, CA on June 10th. It was added because so many of the participants stated that ROI and calculating the value of their community was the most important issue they faced.  So, we didn’t have time to build a true presentation, but rather lead a workshop for participants to learn more. It was lead by our president, Mike Rowland.

Here are the summary notes taken during the session:

• Have to first identify what is the economic value of the community to the organization offering it: (Don’t confuse traffic or behavior metrics with value)
  • Cost Avoidance
  • Increased subscription rates or lower churn rate
  • More frequent purchase rates
  • Higher purchase level/amts
  • Faster close for large item sales
  • Reduce lead generation cost
• Once you’ve identified your value metrics, break down your metrics into 3 buckets to look at communities:
  • Traffic – PV, visits, visitors, etc.
  • Behavior – What they do when the get there, who they are, download/visit, contribution/member, responses by employees vs. customers
  • Value – can attach an economic value to it. Need $ to get to a true ROI model. See above list.
• You have to build relationships w/ the folks in your company. Need access to other systems. You cannot build ROI from community analytics provided by software vendors or from traffic and behavior metrics alone. 
• ROI Frameworks:
  • Cost Avoidance
    • The person who proposes the question needs to verify the answer. This is a feature needed in the platform.
    • # of community support resolutions X $ complimentary support resolution (1-800 number) = total cost avoidance -> economic value
    • Track over set period of time (e.g. quarterly or yearly)
    • ROI = (total economic value – total costs to set up and run forum) / total costs –> over one period and as a percentage
  • Increased subscription or reduced churn
    • Customer database compared to community database
    • cust. database = Average churn rate (e.g. the number of months the avg user subscribes) X price/subscription = customer value
    • Community database – look at active members and see if the churn rate is better or worse.
    • Price will be the same, so you’ll have to see if the churn rate was more or less. If subscriptions are longer, than you have a higher customer value for community members.
    • Shows you slowed the churn rate down.
  • More frequent purchase or Higher Purchase level/amts
    • Use your eCommerce DB or CRM system
    • What is the avg amt customers spend/purchase?
    • go back to comm DB and parce out active members and compare to ecommerce DB (which ones spend more/purchase?)
    • Do comm members have a higher spend/purchase? active comm users X avg $ they spend = economic value
    • Need to trend this and see how it fluctuates.
    • what is the average number of items in completed shopping activity? (e.g. 1.6 items) Do comm members buy more?
    • Avg cost/item X avg # items = economic value
  • CRM decrease cost
    • Want to find what avg value of customer is
  • Faster close of sale (Good for large purchases like software or hardware systems)
    • How fast are organizations moving through your CRM system to sale?
    • Identify active organizations in community DB to compare them to avg organizations.
    • How long does it take the avg. organization to go through sale stages? What’s the cost/sale? Do active organizations in your community go through more quickly and spend more?
  • Lead generation cost
    • Similar to above, but use cost to generate a lead for average customer versus those which originate in community/social media campaigns
• How can you tell if a user came to your comm and then bought your product through a 3rd party reseller? You can’t unless your resellers provide access to their databases which is next to impossible to get.
• Users of support communities become brand neutral after their issue becomes resolved.
• Hidden costs of community for ROI Analysis, make sure you count these:
  • Servers
  • development costs
  • customizations
  • widgets
  • maintenance
• Make sure that you are amortizing your costs across the same time period as your economic value or you will skew your results.

One point to remember is that the value of communities really is derived from active members, not all members. So define your active members with criteria that meet your behavioral key performance indicators (KPIs). For example, an active member can be someone who posted in a forum, downloaded a featured whitepaper, uploaded content, or viewed a webcast in the past month. For B2B especially, it doesn’t have to be an activity within the past week as most B2B community members average 2-3 visits per month unless they are deep into the sales cycle.

The number one issue to watch out for when building your ROI framework is the use of proxies. If you cannot get the data, don’t guess at a proxy for the value because the more proxies you utilize the bigger the house of cards that you build.

Lastly, value can be a set of different items. For a subscription based community value can be both churn rate differential and purchase levels. ROI is not a single value formula, it is a multiple value formula in most cases as there is marketing value in support communities and vice versa. So make sure that you are at least attempting to capture as much of the value drivers as possible in your analysis.

Want to learn more about online community or social media ROI? Contact us today or leave a comment.

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Online Community – B2B Return on Investment (ROI) During Recessions

As we move through a downward business cycle, smart companies are moving counter intuitively to engage more with their customers rather than decreasing their online community efforts. The slide below from a presentation during the height of the Dot Com implosion in 2003 shows that even in a recession, online communities still deliver impressive returns on their investments:

What is interesting about these quotes is that the communities referenced were launched in the 1998 to 2000 time frame when online community was a new offering on the web. To gain these results, our clients had to change the behavior of their potential members to include online communities in their work routines. While it seems old fashioned today when everyone knows what an online community is, these results demonstrate one of our best practices:

Too often organizations buy into the idea that the offering itself will be enough. The “build it and they will come” idea has been proven to fail almost every time. And yet, we see organizations thinking about cutting their community investment or launching a community and letting the community run itself. That is a recipe for failure as well. It also reflects the thinking that online communities and social networks are a ’soft’ application (meaning that they cannot prove their value quantitatively). It is for this reason that many managers move to cut online community budgets dramatically during downturns. This is exactly the wrong time to cut, this is the time to build.

In times of economic uncertainty, your customers and prospects will perform more due diligence than ever prior to buying your product or service. Online communities and social networks are valuable tools in that process. Will a community without a strong company presence be able to influence the purchase decision? Probably not. This reinforces a second best practice:

So how does this tie into the ROI argument? Simple… if your organization is not prepared to engage with the community members by answering their questions, providing documentation, linking them with content, and asking their opinions your community will wither away during the downturn. If your organization is ready to engage with your community, you will build additional brand loyalty among members. Your community will be vibrant in comparison with your competitors who are pulling back. You will be demonstrating the value of working with your organization over the competition. By providing correct information rather than partially correct information (community managers facilitating conversations do this part), you help your prospects learn more about your products/services/company and build confidence in them that you’ll be there to help.

Remember that in most B2B communities, the ratio for those visitors who read versus those who add content is roughly 25 to 1. This means that every successful interaction potentially influences another 25 visitors on average. Depending upon the product or service, it can be much higher. Influence is correlated with purchase intent. When your community is functioning properly and is well managed, the influence it wields is tremendous.

By mining your registration database against your customer database, you’ll be able to prove the value of your online community. By using a proxy of 2-5% of sales made to community members were influenced by the community, you’ll be able to calculate a basic ROI. To refine the proxy, survey your members about the influence the community has had on their purchase decisions. You’ll be surprised how large a percentage of community members have been influenced by something they read or received from the community. But if you are not investing in your community, you will not get the growth needed to generate a positive ROI.

And that’s just the sales/marketing ROI. For those B2B communities engaged in self-service customer support, the cost avoidance equation is easier to figure out and measure.

Want to learn more? Visit our website (Impact Interactions) to download our free presentations on online community best practices.

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Virtual Worlds: What’s Working and What’s Not

Another good article in the WSJ on Tuesday 10/23 titled “Marketers Explore New Virtual Worlds” which details the frustration that some marketers are having in working with Second Life. The writer, Emily Steel does an excellent job of clearing the air about virtual worlds for marketing. Chief among the frustrations are the high costs and uncertain returns of virtual worlds like Second Life.

But digging deeper, it may just be that marketers jumped in without a plan for measuring their success and relied on traffic measures to justify their expense. That is always a recipe for disaster in marketing using interactive marketing sites like Second Life, Facebook, MySpace, and even LinkedIn. The idea that traffic will magically turn a poorly planned campaign into a success is a faulty one at best. And that’s where some marketers go wrong in looking to use virtual worlds…

It is never enough to set up a space in a virtual world (existing or creating your own) without specific calls to action that you can measure and bring back to a business objective. Just as we counsel our clients and prospects to develop success metrics prior to a launch, we would also tell anyone looking to use interactive technology to make sure they understand just what it is they want their members to do when they visit. So here is our quick list of what’s working and what is not in virtual worlds today:

What’s working:

1. Clickable offers for members visiting your area – Coupons, downloadable avatar accessories for basic information or taking a survey
2. Clever updates- Think virtual billboard tactics where your images and message change on a regular basis
3. Persona avatars to greet and discuss your product in the context of the site and member conversations (i.e. subtle references and recommendations, not hard sell)
4. One off events built up with lots of publicity – for an idea of what I mean, look only as far as CSI using Second Life in its television shows. While a coup for Second Life, the buzz for CSI was pretty good and I’m sure it drove in some additional younger viewers who didn’t previously watch.

What’s not working:

1. Build it and they will come thinking – Too many marketers fall into the Field of Dreams syndrome regarding using third party virtual worlds. Just as any interactive element used today, virtual worlds require staff or outsourced contractors to maintain the excitement, interact with users, and in general play greeter to visitors.
2. Poorly executed measurement – relying only on traffic metrics such as visits and views of your virtual property. You need to move towards ratios that measure activity of consequence for your brand and business.
3. The Jump Off the Bridge syndrome- Remember what your Dad used to say? “Just because all of your friends want to jump off the Brooklyn Bridge, do you?” Too much herd mentality out there in interactive marketing. Be original with clear expectations and ideas, don’t just do a virtual land grab because your competition is already there. What if it’s a money loser for them? Do you really want to follow?

There’s a lot of good things happening in Virtual World thinking and practices. Children’s sites like ClubPenguin, Webkins, and others are booming as safe havens for kids online. (Our 3 boys are members of both and interact with their classmates and cousins in these worlds.)

While this same excitement hasn’t taken hold in the business community (except for the gaming world), if done right a well thought out presence in a virtual world can yield great business results.

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