Last year at this time, I was in Austin, TX doing a keynote workshop for Legal Services Corporation on the ROI of Nonprofit Technology. I interviewed technology practitioners from the poverty law community about how they approach ROI and significant technology systems investments like client databases, document assembly systems, or video conference systems. I also contributed a chapter on the topic to NTEN's Managing Your Technology To Meet Your Mission due out by Wiley
I covered the building blocks of a classic ROI process, but translated to a nonprofit context. The basics include: benefits, value, metrics, and financial calculations. I shared case studies and tips for nonprofits on measuring efficiency and effectiveness and looking at tangible/intangible benefits. I still think these are components are essential and should be applied to looking at the ROI (Results on Insight) for nonprofits and social media.
However, even with harsh economic times, there is the temptation to look at numbers only and immediately dismiss social media. I think that is dangerous. Numbers need context - and that context - insight - can help with improvements. Also, I think a lot of nonprofits are in the early implementation stage and to be able to get to traditional ROI - they need experience guided by tracking insights and metrics. You have to set up a framework at the beginning - hence the vital importance of a strategy map.
Jeremiah Owyang has an excellent post for Online Community Managers about demonstrating ROI so their departments, jobs, or communities won't be cut from the budget. He begins points out three outcomes that should be tracked. Nonprofit technology folks will find these all too familiar if they've had to make a case for a new client management system or other expensive upfront investment for mission-critical technology system.
Improvement in marketing efficiency
Community Managers should measure increased speed from word of mouth or marketing awareness, the best way to measure this is time from awareness to close –or spread of WOM. This could also include increase understanding of customers (listening) for marketing research, or warning stakeholders about potential detractors before they become real issues.
Reduction in support costs
The bottom line is always important to business, so if you can measure a decrease in customers going to physical stores, emailing account reps, or calling the support center as they instead rely on community to help self-support themselves, you can start to put dollar costs on this actual community savings.
Actual improvement to sales
This matters most. Community Managers should start to measure how clicks from community directly impact e-commerce, go to product pages (perhaps if you’re B2B) or to affiliate marketing to demonstrate how community interaction increases revenue. If you can demonstrate this (like Dell’s million dollar sales in Twitter) tout this loudly to management.
Jeremiah points out that the first value/outcome - which is essentially about listening and participating, isn't as much appreciated (in a for-profit environment) as the other two which are about money. He recommends to prioritize according. So, for the purposes of an ROI analysis and reporting to decision-makers, maybe you don't emphasize those values in the report or be the only value. However, if you want to get to the other two outcomes. And, just because the second two outcomes are valued more in terms of ROI report, I don't think it means eliminating the strategies and tracking.
Do you agree?
Bill Johnston has some additional thoughts for building a case for ROI for an online community. He talks about the reporting requirements and where to start - that is focusing on value:
Focus on Defining / and Reporting Value
In order for your community strategy to be sustainable, you need to be able to articulate value back to the organization. This value has to be articulated, at least in part, in the cultural language of your organization. In some organizations, it’s all about impact to customer loyalty, it some organizations, this value is growing an audience (member registrations). You will likely wind up with a report that is a mosaic of quantitative and qualitative sources.
Note that qualitative data is important - you need both to do an ROI analysis and to communicate the results. Numbers speak yes - but the qualitative data tells the story and gives context.
In the comments, Mike Pascucci, emphasizes how important the internal evangelism skills are:
It is very important that a Community Manager highlights the “wins” that have resulted because of the Community offerings that a company provides. Community managers need to be the “Internal Evangelist” for these companies. Let everyone know what is happening, and develop an internal communication process to distribute any and all information about your Community.
The highlights to me the importance of making sure that social media is everywhere in the organization and not just an intern in an silo doing it. I don't think you can become an effective evangelist at the end of the project, you need buy-in upfront and continue regular updates. You can only gather "wins" - and both qualitative and quantitative ones if you've set up your hard data tracking system and also gathering qualitative information.
Wendy Harman at the Red Cross has been a master at that.
My question is what happens when the numbers don't look good? Bill Johnson has some advice, what nonprofits may call the "Opportunity Cost"
Show the Cost of Not Participating
One way to show value back to management is to paint a picture of not having a community or community engagement strategy, and the associated costs and losses. These hypothetical costs can range from increased awareness of competitors to decreased customer satisfaction and loyalty.
A consulting company that sells ROI services for online communities says it isn't hard to measure the ROI of online communities (or social media) (using their framework):
It is not hard to develop the ROI framework, but it does take time and relationships within the organization to get the appropriate data. If you are a community manager, you need to build a network outside of the community area in your organization in order to align the community’s analytics with your organization’s focus and goals. Only then will you be able to tap into CRM or e-commerce databases to validate your framework.
Nonprofits have the Social Network Calculator from Care2.
So the challenge is how do you translate these outcomes for a social media effort and a nonprofit context? Here's some examples from last year's NTC Nonprofit Case Study Slam. I'd love to see some more.