Creating a Return on Investment (ROI) calculation for Enterprise 2.0 and internal social media
A major challenge for organizations that are considering internal social media initiatives is that a business case including a financial justification is frequently required.
To be frank, I think ROI calculations for social initiatives are in most cases a waste of time, because so many of the benefits and costs are unknowable before the initiative. A leap of faith is required, after which calculations using real data can be done to help refine strategies.
However if the organization requires a financial case, then those seeing the opportunity need to do what they can to create the case.
Chapter 16 of my report Implementing Enterprise 2.0 is on Building a Business Case. One of the resources I provide in the chapter is a table to help make ROI calculations. All that is required is to put numbers against each of the value and cost items in the table below, where appropriate using a back-of-the-envelope calculation to support them. Not all of the items will be relevant, and you may find other items that are applicable, but it provides a good starting point to generating numbers that can be used in an ROI.
I hope you find it useful! If so, also have a look at the free chapters from Implementing Enterprise 2.0 on issues including risks and benefits, and how these flow into effective governance.
Return on Investment for Enterprise 2.0 and social media
| COSTS | Measurement issues and criteria |
| Technology | |
| Software license fees | Upfront and/or annual fees, including potential fee increases |
| Deployment | Costs of resources and staff time |
| Maintenance | External maintenance contracts or internal support |
| Integration costs | Ingtegration with existing applications |
| Additional hardware required | Internal hardware or external hosting |
| Bandwidth Costs | Increase in internal and external bandwidth required, based on specific usage scenarios |
| Adoption | |
| Training | Classroom, online, or one-on-one training |
| Time to learn | Time of staff taken to learn or adapt to new systems |
| TANGIBLE VALUE | Measurement issues and criteria |
| Revenue | |
| New revenue from existing clients | More effective selling, cross-selling, or conversion of service calls to sales |
| Revenue from new clients | Acquisition of clients from more effective sales efforts or increased visibility |
| Increased productivity | |
| Time saved searching for information | Reduction in online, phone and other search for information required to do work effectively |
| Increased effectiveness of access to better information | Impact on revenues or costs (depending on role) due to access to resources |
| Lower costs – company internal communication | |
| Fewer emails | Cost of sending emails, time taken to write them, and time taken to deal with email |
| Fewer phone calls | Cost of phone calls and time of staff on calls |
| Fewer meetings | Cost of staff time, meeting facilities, travel time, travel expenses, other meeting resources |
| Less travel | Cost of travel, including direct costs, cost of staff time, impact on morale |
| Lower costs – technology | |
| Replacement of existing software licenses | Cost of existing software and technology that can be replaced with new systems |
| Reallocation of IT staff | IT staff that can be redeployed from existing support or maintenance activities |
| Lower costs – product development | |
| Reduced time to market | Cost of all product development resources, including staff time, overheads, external suppliers etc. |
| Cost of market research | Cost of traditional market research such as focus groups and surveys |
| Lower costs – suppliers | |
| Reduced communication costs | Cost of communicating with suppliers |
| More efficient supply | Cost of supplier resources including staff time saved by more effective collaboration that results in lower fees |
| INTANGIBLE VALUE | Measurement issues and criteria |
| Brand capital | |
| Increased sales | Increased sales from higher reputation and visibility |
| Ability to hire best staff | Impact on revenues and costs from having more capable staff |
| Increased customer loyalty | Increased revenue from lower customer turnover and more word-of-mouth recommendations |
| Social capital | |
| Greater collaboration | More efficient working processes and improved access to resources |
| Cost of market research | Increased productivity |
| Lower staff turnover | Improved staff retention due to better working environment |
| Innovation | |
| Create new markets | Generate new opportunities through better collaboration and swifter product creation |
| Take market share | Increase sales due to better competitive intelligence and response to it |
| Recruitment/retention | |
| Lower recruiting and training costs | Reduction in costs of replacing and developing staff who remain due to a better working environment |
