The Community Glossary

Carefully put together words with more than just boring textbook definitions. Get a deep-dive into the world of community-building through best-practices, real-life examples, explanations, how-tos, and what nots.
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Return on Investments (ROI)

Very commonly referred to as ROI, Return on Investments is a measure of value (mostly in monetary) that was received after making a certain amount of investment. For example - if I invest $20 into a business and get back $30, then my ROI is $10.

Although this seems fairly simple, when you put this in terms of community, it becomes extremely difficult to get an accurate measure of how profitable it was. This is also the reason why a lot of organizations are still skeptical about building communities. A lot of decision-makers still think that communities cannot have a sizeable impact on the brand, and even if it does, the process of quantifying that impact is very intensive. Honestly, that’s understandable.

Why is measuring ROI from communities so hard?

  • A lack of data and metrics to begin with. No data means no calibration of the impact that the community had.
  • A lack of data is often associated with an organization’s inability to identify the right metrics to track. This is a much bigger concern because not knowing what to measure will never yield the reasoning behind whether having a community is profitable or not.
  • To cut organizations some slack, their inability to identify the right metrics isn’t entirely their fault. In general, it’s very difficult to attribute community metrics with direct impact. For example - how will you statistically correlate an increase in sales to a discussion in a community? It might just be a coincidence.
  • Difficulty in generalization. Think of it this way - even if you are able to identify a certain profit from the community, can you assume it across the entire spectrum? What if only a small group of people actually contributed to the profit? You cannot assume a metric for the whole community.

What are some ways in which you can measure ROI?

Although measuring ROI is extremely specific to every community, there are some things that can be generalized to get a basic idea -

  • Experimenting. Run experiments across sample groups. For example - take one group of people who are a part of the community and another sample of people who are not. Study their buying habits, retention analytics, overall satisfaction with the product, etc.
  • Measure profits from the sample that was a part of the community and the one that was not. If the people in the community individually spend more than the people who’re not in the community, it can be attributed as a valid metric for measuring ROI.
  • Study the habits of people who were initially not a part of the community but now are. Read a pattern in their interactions with the company overall. A significant difference can potentially determine what the ROI was.

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