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Bust or Boon? Calculating Blog ROI

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Posted February 8, 2007 By Michelle Megna     Feedback

This week reports of phenomenal double-digit sales growth leveling off may be giving online business owners the jitters, but at least you can figure out if your blog is boosting the bottom line.

By now everyone knows that blogs are being used by many e-tailers as a way to capitalize on word-of-mouth marketing by including customers in the shopping experience. One such example would be providing details about product development and showcasing insider information about the company.

But how do you know if blogging is boosting the bottom line? Measuring the return-on-investment for blogs is tricky since the value can't be measured precisely, but Forrester Research analysts tackled this difficult task by issuing two studies, a case study on General Motors and a report outlining how to calculate blog ROI.

In the case study, Forrester looked at General Motors' FastLane blog, launched in January 2005 and cited it as an example of successful business blogging. And while your company is much smaller than GM, there are still some important lessons to take away from the report, namely that it reaped a huge ROI.

"We estimate that the ROI of FastLane for its first year of operation in 2005 was 99 percent, and the estimated ROI for 2006 was lower at 61 percent primarily because of fewer stories about the blog. Our predicted risk-adjusted ROI for 2007 is 39 percent, again because of the continued decline in press coverage," report Charlene Li and Chloe Stromberg, co-authors of Calculating the ROI of Blogging: A Case Study.

And, while that's good news, the analysts emphasize that "The real value of calculating blogging ROI isn't the actual number, which is far from precise, but in seeing where the bulk of benefits and costs come from and refining strategy from there."

Focus Groups for Free
One of the key benefits of the FastLane blog, in addition to press coverage, is that it created a focus group-for little cost. "With more than 100 unique people commenting on the blog per month, GM has an on-demand virtual focus group on its hands. How much is that worth? We estimated that the value is similar to running a traditional focus group with 10 participants once per month, each costing approximately $15,000 for a total of $180,000 per year."

In their sister report "The ROI of Blogging: The Why and How of Blogging Accountability" Li and Stromberg outline a three-step process for evaluating a blog ROI that will highlight the key benefits, costs and risks. With this information, online business owners can better decide whether to blog or not, or how to more efficiently manage an existing one.

To begin, e-tailers should quantify what the benefits of a blog are and then assign a way to measure that using familiar benchmarks and assigning a dollar value to them. For example, the report states that improved search-engine rankings are a benefit of a blog. The metric could be the "percentage of search results landing in the first three search pages driven by the blog," with the associated value being the cost of SEO and paid search campaigns for blog-driven keywords.

Another example is the cost of the above mentioned focus group while a third scenario could be the savings realized by getting press coverage, as opposed to spending on similar advertising, which in the GM case study added up to approximately $381,000 in 2005 and $215,000 in 2006.

Next, you should tally the costs of creating and managing a blog, including things like how much time and money it takes to keep it current and to filter and respond to comments, and then see how it all adds up. In the GM case study, benefits (including customer insight, blog visibility, press and word-of-mouth buzz) generated about $578,000 in value on an investment of $290,000, the costs for launching and managing the blog, yielding a 99 percent ROI.

When assessing your blog ROI, the study recommends using free monitoring tools such as Icerocket.com's Blogs Trend Tool or Google Blog Search to "track conversation around brands, products and industry topics and give marketers a sense of which consumers want to engage in dialogue with the company, what they most want to talk about and with whom they want to speak."

The ROI of Blogging accountability report goes on to advise companies to adjust the ROI for potential risks, and shows how to calculate this, which involves translating them to a dollar value by looking at the probability that potential scenarios could occur and what the financial impact would be, though it seems this is more important for larger companies that may fear lawsuits and the like.

E-Commerce Sales to See Single-Digit Growth?
In other e-commerce research news, JupiterResearch analyst Patti Freeman Evans is one of the first researchers to predict that the phenomenal growth in online retail is set to level off.

"Assuming growth continues in a similar trajectory over the coming decades, U.S. online retail sales will plateau at 10 percent to 15 percent of total U.S. retail sales, barring a dramatic change in the online shopping experience that promotes an inordinate spending shift among buyers," says Evans. "Online retail sales are maturing, and the lion's share of future growth will primarily come from existing buyers spending more in the online channel."

The research group projects that online retail will still increase by 16 percent this year, but that's still an eight percent decline from the previous year's sales. By 2011, however, online spending growth is slated to fall to single digits.

E-Mail Marketing: It Was the Best of Times, It Was the Worst of Times
Finally, another Jupiter report,"E-mail Marketing Survey 2006" by analyst David Daniels, states that 43 percent of e-mail users believe signing up for permission-based e-mail from retailers and banks leads to more unsolicited e-mail, while nearly one-third believe the unsubscribe button in e-mail offers does not work.

The research also shows that increasing e-mail volumes, changes in composition of messages in the inbox and use of secondary e-mail accounts will continue to challenge marketers to cut through the clutter. Daniels says, however, that despite such attitudes signaling an erosion of confidence, nearly one-half of online users opting in to receive e-mail marketing messages have been influenced to make purchases from them.

Michelle Megna is managing editor of ECommerce-Guide.com.

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