Two concepts central to thinking about Community ROI: Incremental value and conversion rate

large__2723422506In my previous post, I discussed ways to measure engagement in your online community. I quoted consultant and community manager Joseph Cothrel, who introduced two concepts that are central to thinking about community ROI: incremental value and conversion rate.

In this post I will explain these two concepts in more detail.

Incremental value

According to Joseph, this is “the difference between the value created by a business with an online community and the estimated value that the business would generate in the absence of such a community” (8). You basically compare a community member and a non-community member in terms of the activities that are most relevant to the business objectives of the community. Nonprofits could measure the awareness of development issues that non-members have compared to members. Or they can measure whether community members donate more or more often than non-members. When the difference is quantified it allows not only a point-in-time measure of the value created by community, but also a method for quantifying the value of future growth in community membership. It is important for nonprofits before applying this metrics, to first define the term community member clearly. Is it a person that visits your community weekly? Or is a community member also someone that visited your community just a couple of times?

Conversion Rate

“While many people think of conversion as the process of driving commercial transactions, the notion can be applied to any situation in which a business is seeking to motivate action on the part of the user” (Gurley Bey). A good example is Amazon, one of the web commerce leaders in the world. They have segmented their users into three categories: visitors, users and customers. Visitors are people who just visit the site; users are people, who have offered information, wrote a book review or provided feedback on the site; customers are people who have made an actual purchase.  “Amazon.com focuses on conversion at each level, despite the fact that only customers put money in the till” (March). When calculating the ROI, conversion rate is an important input for calculating the impact of your community and the management of it. Nonprofits can, just as Amazon, segment members into categories. For example a category that exists of people that just visits and observes a group that actively engages/generates content, and a group that donates, volunteers or becomes a monthly supporter. Once they distinguished what they see as a conversion, they can clearly measure the ROI of their efforts.

In conclusion: although ROI is not the same as metrics, they do complement each other. You need metrics to measure the business value of your brand community. The equation is as follows:

This calculation is “based on coming up with numbers for the benefits that the brand community brought to the organization and the costs or investment associated with the initiative” (Natalie Petouhoff 18).

If I think of an example for nonprofits in specific it would be as follows: metrics can show that the amount of community members went up.  Benefits of this change could be an increase in number of donations. This benefit could be a reduction in the amount spent on offline marketing activities that encourage people to donate. The costs can be determined by calculating the cost of the brand community. This would include the costs of the community manager, the amount spent on the platform, technology, campaigns etc.

To conclude: finding accurate and reliable ways to measure the ROI of your brand community is still a challenge that many brands deal with. Though, as I discussed in earlier posts, there is significant business value that organizations can benefit from when investing in brand communities.

Until next time,

Anne-Sophie Gaspersz

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Photo credit: ~jjjohn~ via photopin cc

Photography: Giovanni Orlando (~jjjohn~)

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