How to calculate the ROI of E2.0 / Social Business projects

An interesting document has come my way from IDC, “Determining the Value of Social Business ROI: Myths, Facts, and Potentially High Returns“.  To my mind, the report provides a simple and elegant way of measuring ROI in real terms, it highlights a very important principle of unified social strategy and spells out even more potential gains when we look at the broader picture.

How to calculate the ROI of E2.0

To business: the report points to the way of precisely calculating the ROI of social business or Enterprise 2.0 projects. It does this by debunking a couple of myths, basically fluffy measurements where ROI becomes ‘return on impact’ and the like; and concentrates on the ‘brass tacks’:

“To calculate ROI, in its simplest terms, means that companies must have more money coming in than money being spent on something…[] ROI compares gains with costs and it relates very specifically to money.”

This of course is the literally the bottom line, tangible results in the accounts. So how do they think this can be measured? Leaving aside their arguments on Cashflow Analysis and Net Present Value, they see Social Business gains in the following areas:

  • Sales Revenue
  • Customer Insights
  • Brand Protection
  • Lead Generation
  • Call Center Operations

For all these gains, IDC details how they would be generated, for example sales revenue is increased by ‘accelerated customer acquisition rates and decreased customer churn’; customer insights leads enables the company to ‘leverage real-time insights to accelerate product development, messaging, and go-to-market strategy’ and lead generation gains are seen in the ‘lower cost of lead acquisition through less expensive social channels’.

Against these, they detail the costs as follows:

  • People
  • Technology

These costs are straightforward, the people needed to run the projects, cost of software and hosting from Microsoft, Jive or whoever…

The ROI is therefore calculated by subtracting the costs from the gains and IDC provide and example that pumps out a 561% gain. To the skeptical, I can best advise read the report in full, I have obviously and by necessity simplified here.

A Unified Social Strategy

Earlier on I mentioned a key principle of a unified social strategy, let me spell this out if I may. IDC see internal social business practices completely in synch with external social media activities. The gains we see, are in the dialectical play between the two spheres, for example, customer insights provide a better service at a cheaper cost, which means the production of better products, morre aligned to customer needs. We can extend this out further and look at the potential for even more gains. How so?

Articulating the Brand

Well if we look at the brand, IDC see the gains in protecting the brand. They see social business software working to help limit the brand damage in an incident of whatever magnitude. I think there’s more here however. For me this is how social software can work in concert with internal communications initiatives. I may be a little radical here but I see internal communications as about articulating the brand internally, about making the brand something real and worthwhile for employees.

The importance of social business’ role here was shown for me at least in a recent Forrester report, Do Your Employees Advocate For Your Company? What was noteworthy here was the finding that where social business software was present the percentage of employees promoting or detracting the company

With Social Business: 48% promoters / 22% detractors

No Social Business: 31% promoters / 45% detractors

Getting employees engaged and aligned to the company goals is for many internal comms people a number one goal. This is also something that is measurable to the extent it too can be quantified to the bottom line. It is also pivotal to the brand, even more so if we think in terms of damage limitation. If something bad happens and 45% of the employees are cheesed off with the company they are not likely to be brand ambassadors…

In Conclusion

I liked this report for showing in simple and concrete ways how the ROI of our social business efforts can be measured. It also points to a holistic way of managing both sides of the social equation. It achieves this well and provides the foundation for going far deeper and to genuinely quantify how.

Update 1st Dec: checkout this great article on SocialCast’s site: http://blog.socialcast.com/how-to-calculate-the-roi-of-enterprise-2-0/

See also my blog on UBM and their ROI on social business / E 2.0 http://theparallaxview.com/2010/03/ubm-case-study-shows-cash-benefits-social-software/

2 thoughts on “How to calculate the ROI of E2.0 / Social Business projects”

  1. I have been using IBM connections and it is an excellent product. For a few of our users that needs smartphone support, we have installed Social Network software which works with iphone and android

    1. Hi Kate,
      I am delighted to hear that you are finding Connections delivering business value to your firm. As I am working on ROI from these investments for IBM, it would be great if we could talk. May I contact you? Let me know at pfunke@us.ibm.com

      Peter Funke
      Executive Consultant, IBM Business Value Assessment

Leave a Reply

Your email address will not be published. Required fields are marked *