10 Critical Success Factors for Generating ROI from Online Customer Communities
Measuring Your Community’s Impact on Your Profitability
By Matthew D. Lees, October 2, 2008

NETTING IT OUT

Online customer communities have been around for many years, yet companies all too often have little idea of the impact they have on their businesses or the value they provide. Community execs may be able to recite chapter and verse on the size of the community, its growth rate, the number of pages served, and posts per day, but these participation- and activity-based metrics only give a sense of the health of the community, not what it’s doing for the business.

For sure, there are several challenges in determining community ROI, including difficulties in attributing business benefits to the community, attention given to participation (or “community health” metrics) instead of business case metrics, and thinking that new and different metrics are needed to figure out ROI for online communities and social media initiatives.

But ROI opportunities for online communities abound. Leveraging these starts with looking at the various factors that affect community ROI and identifying those that are appropriate to and accessible for your particular situation.

This report presents 10 of the most critical factors that affect ROI from customer communities. Understanding how these factors play out in your organization is the first step toward identifying and quantifying ROI, and ensuring that your community’s success is measured not only by activity, but also by its impact on the profitability of your business.

INTRODUCTION

When we ask business sponsors of online communities “Is your community successful?” the most common replies are along the lines of:

“Oh, yes. We have 100,000 members (or users or registered users).”

and

“Yes, we get 50,000 page views per day.”

and

“Absolutely! The forums get over 90 posts per day.”

These numbers may (or may not, depending on the situation) be impressive, but the key takeaway is that these executives and managers are thinking about the success of the community first and foremost in terms of community participation. It’s a common and natural thing to do, of course, partly because such metrics are relatively easy to obtain and convey a sense that something—hopefully something good—is happening.

But participation metrics, while important in showing the “health” of the community over time, are just stepping stones toward letting you know what the community is doing for your business.

At the Patricia Seybold Group, we tend to applaud most customer-facing initiatives. But it’s not enough to build and maintain a customer community simply because it’s a trend or because of a decree from upper management. Such communities tend to wither over time, doing little good long term for the company or customers. A customer community has real business value when it’s planned strategically and when it is understood well enough to be able to show its true return on investment.

ROI as Good Ol’ “Return on Investment”

With every new medium come new ways of thinking about what they mean for business. Companies want to know if they’ll help or hurt and how best to leverage them for their benefit. In the online community and social media space, some have proposed new concepts such as “Return on Attention,” “Return on Information,” and “Return on Involvement.” While not inappropriate to consider, these business concepts are really just attempts at providing ammunition for convincing upper management that the community can have some nebulous business value and is, therefore, worthwhile to support, even if it isn’t necessarily generating revenue directly.

Our perspective is that business is business, whether it’s done in person, over the phone, via the Internet, or on the moon. There’s revenue and expenses, and profit and loss. We don’t see anything wrong with thinking about ROI as “Return on Investment.”

The Challenges of Identifying ROI

Of course, we never said showing community ROI was easy! There are some definite challenges in identifying and quantifying the business benefits of online communities.

ATTRIBUTION. It can be difficult for many organizations to show cause and effect for things that happen due to the community. For example, if sales of a new product increase, was it due to a TV or magazine ad, a conversation (or series of conversations) within the community, or something else? If customer service inquiries drop by 10 percent was it due to product improvements, the implementation of a new community feature that makes it easier for customers to answer each other’s questions, or another factor?

HEALTH METRICS/ANECDOTAL INFORMATION. The hard metrics provided by many community platforms aren’t usually business metrics—they’re about participation and activity— and the business information they provide are often anecdotal and therefore not statistically meaningful. While some platform providers are making important strides in tying participation metrics to business metrics, a lot of assumptions are still being made. And while anecdotes and stories of how the community has impacted the business can be useful and effective, they don’t have the same ability to make a business case as hard numbers.

THINKING THAT SPECIAL METRICS ARE NEEDED. As discussed in the Introduction, determining community ROI is more about connecting the dots to existing ROI metrics used throughout the company, than coming up with new ones.

CROSS-ORGANIZATIONAL ISSUES. While customer communities often arise out of service and support or marketing departments, they’re fundamentally cross-organizational in nature. Every business unit can potentially contribute to the community, and every business unit can derive benefits from it. This makes for some degree of complexity in ownership and management, as well as in generating ROI. If a particular business unit is not involved with the community, the company is losing out on any potential ROI that could be seen by that department.

Examples of Community ROI

We present here some examples of ROI benefits of customer communities. Which ones relate to your situation will depend on several things, including the type of community, your industry, your organizational culture, the size of your customer base, and so on.

Note that the focus here is on the “Return” part of ROI. It is expected that calculating the “Investment” part is a relatively simple matter of identifying and adding up the expenses in launching and supporting the community (such as for software licenses, third-party technology and/or service providers, internal resources).

• Revenue. Revenue from advertising, sponsorship, and partner programs; paid subscriptions by community members; cross-sell and up-sell; lead generation.

• Cost Reduction. Lower costs due to deflected inquiries to call center (phone, email, etc.); lower costs of market research initiatives.

• Customer Satisfaction and Loyalty. Increase in customer satisfaction and customer loyalty: which translates to increased lifetime customer value, increased revenue, etc.

• Customer Insight. Business knowledge and market research through learning from customers via direct (polls, surveys, etc.) and indirect methods (mining community conversations); innovation of products, services, and business processes: which leads to lower costs of product development.

• Early Warning. Learning of problems with products and services (e.g., software bugs) through the community; learning about potential PR issues from community members before they come through other channels (“canary in a coal mine”): resulting in fewer required “fixes” being built and sent out, fewer returns, fewer service calls, and fewer customer defections.

• Brand. Enhanced brand image; extended brand reach and awareness: leading to increased business and revenue.

• Employee Productivity. Helping employees be more efficient and productive in their jobs: resulting in lower turnover, thus lower training costs, and less need for additional staff.

Connecting the Dots: Quantifying ROI

The list above points to general buckets of ROI. The next steps would be to identify which items pertain to your particular situation and to work to quantify them.

Take, for example, a software company that realizes that it learns of problems with new releases an average of three days earlier through its customer community than it does through its other support channels. That three-day lead time has a direct impact on its bottom line, as finding out about problems earlier means the company can fix the problems earlier, and this, in turn, means that more customers will pay for the upgrade to a more stable system. Making appropriate estimates and performing the business analysis will show the increase in revenue from these sales, as well as a likely cost saving from support calls that never materialized due to the proactive fix.

10 Critical Success Factors

These success factors are geared toward generating ROI from the community and profitability for the business. They go beyond creating a vibrant, healthy community, which is a necessary, but not sufficient condition for a community that positively impacts the business.

In our consulting work, we look at a large number of factors that impact ROI. Here we present 10 of the most critical ones that relate to customer communities. They are listed in somewhat of a chronological order (based on how one might go about preparing to launch a new community) rather than in order of priority. The priority is yours to determine based on your business needs:

1. Community “Ownership”

2. Business Goals

3. Customer Goals

4. Organizational Buy-In

5. Personnel

6. Budget

7. Technology

8. Customer Engagement

9. Organizational Communication

10. Analytical Tools and Processes

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