ROI, as you are probably aware, is an acronym for ‘Return on Investment’. From a business point of view, a company wants to be satisfied that every dollar spent will make them more in return. The return on investment formula is as follows:
(Gain from Investment – Cost of Investment)
ROI = ──────────────────────────────────
Cost of Investment
Traditionally, ROI has been measured in web metrics, such as page views, users, and click-throughs, colloquially referred to as ‘eyeballs’, but this is no longer considered a comprehensive enough method of measuring ROI.
The ability to measure Return on Investment (ROI) for the use of web 2.0 applications in the workplace has been impeded by the fact that it is difficult to show a direct benefit and immediate return as a result of the use of social media. Connie Benson, Community Strategist, has identified that the measurement of direct benefit and immediate return is challenging for business to measure because customer engagement is a long term commitment and because a lot more education is needed about the importance of the use of social media to increase not only the profits, but the reputation of a business and the ability to provide customer satisfaction.
Joshua Paul discusses why he thinks it’s important for an organisation to measure community engagement and highlights 6 Key Customer Engagement Metrics for improving online community ROI.
1) Visit to New Registration Ratio
What It Measures: This ratio measures the ability of your marketing messages and website to recruit and convert people who visit your website into online community members.
How to Measure: Divide the number of new online community registrations by the total number of visitors to your website.
2) Visit to Login Ratio
What It Measures: Are increases in members accessing your online community a result of more members finding value in your community and returning, or just an overall increase in website visitors?
How to Measure: Track the number of people who visit your website against the number of returning members who log into your online community. Tip: It is also helpful to combine the new registration and returning logins to see the overall community access (new and returning) to website visit ratio.
3) Login to Post & Comment Ratio
What It Measures: This ratio indicates whether or not your organization’s online community is seeing an increase in contributions by members.
How to Measure: Create the ratio by tallying the number of forum or blog posts, idea submissions, comments, or file uploads, then dividing it by the total number of logins.
4) Post to Comment Ratio
What It Measures: This metric determines if the content being produced in the community is driving engagement.
How to Measure: Compare the number of blog post, forum entries, idea submissions, or file uploads to the number of comments these items receive.
5) Login to Action Ratio
What It Measures: By comparing activity with logins, you have a ratio that pinpoints the effectiveness of your community-building tactics inside your community. If you measure activity alone, you don’t know if you are seeing an increase due to better engagement tactics inside your community or a general increase in members visiting your community.
How to Measure: Actions are defined as including blog and forum posts, comments, posting and downloading files, watching videos, “friending” people, sending private messages, and many other actions depending on the community. Divide the sum of these activities by the overall community logins.
6) Members to Completed Profile Ratio
What It Measures: This ratio gives you an idea of how committed your target audience is to the community.
How to Measure: Divide the number of completed (or mostly completed) member profiles with the overall membership of the community.
Jason Falls argues the problem with trying to determine ROI for social media is “you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable”. He illustrates his point to advocates of quantifiable metric measurements for ROI for social media by highlighting the inability to assign multiple choice answers to essay questions as an analogy.
Katie Delahaye Paine states that a shift is needed in how social media platforms are measured. According to Katie, the ultimate question to be asking when measuring engagement is whether all parties are getting what they want out of the conversation.
Katie Delahaye Paine shares her insight into the difficulties faced with measuring ROI for social media platforms on SME-TV:
Where do we go from here? Do you agree with the likes of Jason Falls and Katie Paine? Is it impossible to measure community engagement in metric terms? Or do we have to think laterally in terms of how we can measure engagement. The following example provided by Tom Gray in response to Jason’s article provides useful insight into how to measure ROI for social media tools:
A client was preparing to self-publish her book and she mentioned its title and premise on her LinkedIn profile. An editor for a major book publisher noticed the reference and liked its focus. He engaged her in a conversation the result of which is she kept the $20 000 that self-publishing would have cost and pocketed $20 000 as an advance and is slated for a bells-and-whistles release this Fall including major launch campaign and national distribution to leading on and offline book sellers.
What is her ROI? A couple of hours invested in setting up a LinkedIn profile, a five minute update announcing her book, a couple of hours of conversation via email and telephone = $40,000 ($20 000 saved plus $20 000 in advance) in addition to royalties, increased fees and speaking engagement dollars due to status upgrade as a ‘published’ .
I would love to hear your thoughts on this contentious topic!