The ROI of blogging, and whether Jonathan Schwartz’s blog pays for itself

Werner Vogels, the CTO of Amazon, apparently gave Shel Israel and Robert Scoble – authors of Naked Conversations, How Blogs are Changing the Way Businesses Talk with Customers – a hard time when they dropped by at Amazon to evangelise the value of corporate blogs. Vogels wanted hard and fast metrics to back up their arguments, and he felt they couldn’t give them to him.

But if one was to try and count the quantitative side, where would one start? I confess maths was among my worst subjects at school, but I had a go at a simple equation to see if I could calculate the ROI of a corporate blog.It’s dead easy, as long as the site carries advertising. Sadly few corporate blog sites do, so I had to come up with a second equation that takes into account the opportunity cost of lead generation, but more on that later.

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Anyway for sites with advertising, that don’t tend to generate many useful leads for the marketing department, I came up with BVIa – for Blog Value Index a. It’s a simple equation to work out in quantitative terms whether the blog is paying for itself or costing the company money.

If you pump your figures into the equation and the BVI comes out at less than one, then the blog is costing the company money, and if the index comes out greater than one, it’s generating profit. In all these equations I assume the cost of blog software and hosting and the like is zero – it’s not expensive and usually covered under a company’s other hosting costs anyway.

Here’s the equation:

BVIa =

adh (aay/1,000)

—————

abt x ehw

 

If you look at the graphic, you’ll see that you need to know how many hits the blog gets per day (average daily hits or adh); and the average advertising yield for web adverts alongside the blog (aay). To work out the cost of the blog you need abt, which is the average number of hours spent per day blogging, and ehw, which is the employee hourly wage of the blogger.

Let’s try it. An employee paid $50,000 per annum spends 2 hours per day blogging. Their blog generates 4,000 hits per day and they can sell advertising alongside the blog at a rate of $30 per thousand impressions. The equation looks something like this:

4,000(30/1,000)

—————–

2 x 24

 

The top line is hits times advertising yield, and the bottom line is 2 hours at a wage of $24 per hour. Work it out and you get:

120

48

..or a BVI of 2.5. Remember a BVI above 1 means the blog is paying for itself, so this particular blog is easily paying for itself.

Let’s do it for Sun COO Jonathan Schwartz’s famous blog, which I’m told generates around 4,000 hits per day. Their latest 10k filing with the SEC showed his annual salary was $900,000 per year excluding bonuses. Let’s assume that Sun did have advertising alongside his blog, and that they could sell those adverts for around $30 per thousand impressions. Let’s assume he spends an hour and a half a day on his blog. The equation looks like this:

4,000(30/1,000)

—————

1.5 x $432.69

I calculated his average hourly wage by dividing his salary by 52 weeks, then into 5-day chunks, then 8 hour days. He probably works longer hours, but what the hell.

Anyway start the equation and you get this:

120

649

which gives a BVI result of 0.18, which means that his blog is a total waste of time. So sorry Jonathan, but perhaps you should knock it on the head.

Of course, most corporate blogs do not carry paid advertising, so it’s a bit of a moot point. However if you know from traffic analysis that a blog helps with a certain amount of lead generation, then you can use another equation – as long as you know how much it costs your marketing department to generate a typical lead without the help of the blog.

I called this second equation BVIb, or Blog Value Index b. It takes into account the value of leads generated. It looks like this:

BVIb =

adl x algc

———-

abt x ehw

Where adl is average daily leads generated by the blog, and algc is the average lead generation cost typically experienced by the marketing department without the help of the blog.

In other words, if it costs your marketing department on average $100 to get one decent lead, and you know that 25 people a day leave their details somewhere on the Sun site after visiting Jonathan’s blog, then you can use the equation like so:

25 x 100

————-

1.5 x $432.69

or

2,500

—–

649

or a BVIb of 3.85. Going on this basis, you can see that suddenly Jonathan’s blog seems far more worthwhile. Indeed it is a very valuable asset. So you’d better get it up and running again, Jonathan.

If you know the blog yields advertising revenue and generates leads, then you’re even more likely to be sitting on an ROI-positive asset. The equation combining BVIa and BVIb looks like this:

BVIc =

(adh x aay / 1000) + (adl x algc)

———————————-

abt x ehw

Let’s pretend Jonathan’s blog has paid for adverts alongside it (it doesn’t), and also generates 25 decent leads a day that would have cost your marketing department $2,500 to generate. The equation looks like this:

120 + 2,500

———–

649

or a BVIb of 4.03. Profit, profit, profit!

 

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Of course as Dennis Howlett notes, there is more to blogging than quantitative benefit. There is the good it can do to your corporate brand, customer loyalty, partnerships and so on. All of these are far harder to calculate, granted. But if you want a quick and dirty answer to the question of whether your corporate blog is covering its costs, just plug the figures into BVIa or BVIb and see what happens.

Interestingly, you’ll notice from both BVIa, BVIb and the combined BVIc that the lower the blogger’s average hourly salary, the more likely the blog is to pay for itself – just see what Jonathan’s $900,000 salary does to his BVIa: ouch! So while today’s corporate bloggers are often the big cheeses, it may actually be more profitable for the company to get more junior members of staff blogging instead, if they are able to generate a similar number of hits and leads. Just a thought.

UPDATE: GhostBlogger over here says I did an admirable job with my algebra but argues that ROI has got to include intangibles as well as tangibles. Trouble is, how do you put metrics on intangibles – that line of thinking is going to take us right back to the Werner vs. Israel and Scoble argument that we started with. My intention was to see if you could put metrics on the value of a blog. If it’s intangible it’s not going to have a number to punch into the equation, right?

UPDATE 2: Jeremy Ballenger is kind enough to say that "Stamper’s approach is an excellent place to start" in a posting here. I like the dog, by the way. Ballenger also notes that some of the harder-to-quantify measures like reputation are omitted from the equations, but I come back to my point that it would be hard to say to what extent the public’s perception of your corporate brand is down to one (or more) of its blogs, versus its customer service, advertising etc etc.

UPDATE 3: James Governor has some sage comments on the whole ROI debate, noting: "Ask not what a blog can do for your corporate bottom line, but what it can do for you. If it scales you, and you’re already effective, then its also scaling business effectiveness. Blogging creates opportunites to geometrically scale I… All (or just almost all?) successful Global Microbrands are indelibly associated with people. It’s people, not infrastructures, that can now scale in fairly unprecedented ways. Blogging is a part of that phenomenon."

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