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

COSTSMeasurement issues and criteria
Technology
Software license feesUpfront and/or annual fees, including potential fee increases
DeploymentCosts of resources and staff time
MaintenanceExternal maintenance contracts or internal support
Integration costsIngtegration with existing applications
Additional hardware requiredInternal hardware or external hosting
Bandwidth CostsIncrease in internal and external bandwidth required, based on specific usage scenarios
Adoption
TrainingClassroom, online, or one-on-one training
Time to learnTime of staff taken to learn or adapt to new systems

TANGIBLE VALUEMeasurement issues and criteria
Revenue
New revenue from existing clientsMore effective selling, cross-selling, or conversion of service calls to sales
Revenue from new clientsAcquisition of clients from more effective sales efforts or increased visibility
Increased productivity
Time saved searching for informationReduction in online, phone and other search for information required to do work effectively
Increased effectiveness of access to better informationImpact on revenues or costs (depending on role) due to access to resources
Lower costs – company internal communication
Fewer emailsCost of sending emails, time taken to write them, and time taken to deal with email
Fewer phone callsCost of phone calls and time of staff on calls
Fewer meetingsCost of staff time, meeting facilities, travel time, travel expenses, other meeting resources
Less travelCost of travel, including direct costs, cost of staff time, impact on morale
Lower costs – technology
Replacement of existing software licensesCost of existing software and technology that can be replaced with new systems
Reallocation of IT staffIT staff that can be redeployed from existing support or maintenance activities
Lower costs – product development
Reduced time to marketCost of all product development resources, including staff time, overheads, external suppliers etc.
Cost of market researchCost of traditional market research such as focus groups and surveys
Lower costs – suppliers
Reduced communication costsCost of communicating with suppliers
More efficient supplyCost of supplier resources including staff time saved by more effective collaboration that results in lower fees

INTANGIBLE VALUEMeasurement issues and criteria
Brand capital
Increased salesIncreased sales from higher reputation and visibility
Ability to hire best staffImpact on revenues and costs from having more capable staff
Increased customer loyaltyIncreased revenue from lower customer turnover and more word-of-mouth recommendations
Social capital
Greater collaborationMore efficient working processes and improved access to resources
Cost of market researchIncreased productivity
Lower staff turnoverImproved staff retention due to better working environment
Innovation
Create new marketsGenerate new opportunities through better collaboration and swifter product creation
Take market shareIncrease sales due to better competitive intelligence and response to it
Recruitment/retention
Lower recruiting and training costsReduction in costs of replacing and developing staff who remain due to a better working environment