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Measuring the ROI of social CRM no easy task

Many social CRM projects are justified by "soft" returns, and while those add benefits to the bottom line, a social CRM project can provide plenty of hard ROI figures.

As more enterprises wade into social channels like Facebook, YouTube, Twitter and the like, their executives must ask: “Is this worth it -- not just the time and money but the risk of failure?” After all, there are plenty of anecdotes of companies heading onto Facebook or Twitter only to find themselves ambushed by angry customers or embarrassed by an unwary employee's poor answer to a customer question.

So the question of value is a real one for any business project. But in social media, like many new areas, ROI alone may not tell the value of the effort. So how can the value of an investment in social CRM be measured?

A Forrester report in May 2009, The ROI of Online Customer Service Communities, noted that value or benefits to the business from the customer service approach to social CRM could be gauged by such things as the reduction in call volume or email volume, increase in productivity per agent, increase in an average customer’s lifetime value, lead conversion rates, and an increase in product idea generation.

Ray Wang, formerly with Forrester and today a well-known social media analyst for the Altimeter Group, believes businesses need to judge social channels by usage as well as other types of outcomes. For instance, businesses might compare customer retention rates over the course of a year between the customers who were active in an online forum or had gotten customer service through Twitter vs. customers who had no activity in the company's social channels. If the customer satisfaction or retention rates are higher in the group that uses the social channels, one could assume that having a social media initiative is returning tangible value to the company.

"My approach has been to use usage plus outcomes to measure, because we know there is a deferred benefit with social CRM," Wang said. "You can measure your social channels on a weekly basis and do quarterly reports on how we improved customer satisfaction or how we got a reduction in churn or here's indications of up-selling."

The value of one complaint viewed by 1,000 prospects

iRobot, a company in Bedford, Mass., which develops robotic devices for the home consumer and government market, measures the success of its online CRM efforts by the fact that 97% of customers using iRobot’s online support are able to solve their own problems. There has also been a 30% reduction in phone calls. To measure the success of social channel projects such as monitoring and engaging customers on Twitter, the customer service team is looking at things like the potential dollar impact of a single negative -- or positive -- customer comment.

Maryellen Abreu, iRobot’s director of global technical support, notes that a typical home consumer spends around $200 with the company. So if that one person complains on Twitter or Facebook, and 1,000 prospective buyers view it, there could be a $200,000 theoretical loss involved – if one assumes that 100% of those prospects would actually have bought a Roomba. The key is figuring out what percentage of the viewers do, in fact, turn into customers.

“Our customer base is an educated one, and they often do searches online before they buy,” she explained. “So those thousand hits on a negative posting could all be potential customers.”

Abreu also tracks the percentage of angry complaints from all channels, including Twitter, and which ones are resolved positively.

“The percentage of complaints that can be turned to a positive response is in the high nineties if we’re able to reach out to them,” she said.

Abreu uses Google Alerts to keep tabs on what’s being said about the products, and RightNow Technologies’ Cloud Monitor to quantify the types of posts, both negative and positive. That enables her not only to have a measure of customer satisfaction and information on the types of problems commented on but to start putting dollar figures on the negative and positive comments.

At Jupiter Networks, a project to get customers certified on its JUNOS software was conducted over the company's J-Net Community, which has online discussion forums, chat, member rankings based on their activity on the network, and video and blog postings. Last year, the company began a campaign on the J-Net community as well as on Twitter and Facebook urging people to get certified, according to Todd Shimizu, director of online communities at the Sunnyvale, Calif.-based networking company. Jupiter launched the program in July of 2009. Certifications increased from about 150 per week to more than 1,000 per week by the end of August 2009 -- an increase of 560%.

However, Jacob Morgan, a consultant at Chess Media Group and author of the book Twittfaced, notes that while ROI is important, it isn’t always the best measure of a social media effort’s contribution to the company’s bottom line, especially in the short term, when start-up costs must be factored in.

Morgan suggests using metrics that indicate return to the company, but he advises against looking for short-term ROI on a project that is, in reality, a long-term effort. For instance, if customer satisfaction ratings began to increase among those who were members of a company's online community, a business might consider that an indication of value returned.

“Last year, we were pretty hell-bent on this notion of ROI and we wanted to focus solely on ROI,” Morgan said. “But over time, as we spoke to more and more companies in this space, we came to the conclusion that if they’re not getting a specific dollar amount back from a project, but they are [meeting] a specific business need or objective, then that is just as important."

Social metrics: A mixed bag

Allen Bonde, managing director at Evoke CRM Partners in Franklin, Mass., suggests using multiple types of metrics to gauge the value of any online social CRM effort.  

“The metrics I’d use are those used in general in the Internet world -- usage metrics, signing people up for premium content, and then blending those with more outcomes-based metrics such as customer satisfaction, or the percentage of calls handled in the online community vs. the call center,” Bonde said.

Some of the measures that Morgan and others have used to gauge a social channel’s contribution to the enterprise include metrics in customer service, marketing, sales, and product development:

Customer service:

•         Increase in customer retention

•         Customer satisfaction ratings improved

•         Service calls deflected from call center to online forum

•         Reduction in overall customer service costs


•         Product- or company-related postings

•         Positive product comments, reviews

•         Visitors following link from social channel to online store’s URL

•         Visitors referred to website from online friend


•         More sales leads with expressed interest or need

•         Increase in referrals

•         Reduce cost per lead acquired

•         Key social influencers identified and engaged (invited to write a blog, for instance, or otherwise participate in a company’s online community)

•         Overall increase in online sales and/or online customers

•         High response rate to coupon or promotion offered on Facebook or other social channel

•         Increased purchasing from social channel visitors vs. regular online visitors

Product development:

•         Product defects caught

•         New ideas for future products or services generated via contests or “crowd sourcing,” in which online groups brainstorm and then vote on best ideas

•         Responses to online surveys to vote on new product features or upgrades

Other types of return on investment aren’t so easily calculated, such as the public relations value of publicly handling a corporate scandal with skill and grace in front of 2 million online spectators.

“Many things are financial, but many are not," Bonde said. "When people are playing catch-up in a market like this, the ROI takes a back seat to urgency, time to market."

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