How to Calculate ROI for your website15 May 2014
Calculating the return on investment is essential in any investment, most common investments such as a bank account or stocks, provide clear ROI with the respective interest rates. But how do you calculate ROI for a website?
Websites can be very costly, from a few thousand going potentially to the tens and hundreds of thousands depending on the level of complexity required. Not only that, the marketing agency you hired has probably asked / requested that you keep updating the website every so often, and possibly spend money on advertising, such as AdWords. But now that you’re doing all this how do you know if you’re getting decent returns on your investment?
The answer might not necessarily be so straight forward, first and foremost websites can be categorised into three.
- Lead Generating
- Supporting Act
PS. I’m purposefully omitting media website and for-fun websites as those are computed differently
Calculating ROI for e-commerce websites is far more straight forward, than Lead Generating websites. This is due to the fact, that each sale can be tracked by the system and attributed back to it’s source. A decent reporting mechanism can quickly outline the costs of obtaining the lead, the gross value of the sale, and the net profit per sale.
For example, - an E-Commerce website costed $/€ 10,000 to create. - $/€ 1000 was spend on advertising in the first month - $/€ 5000 of goods were sold in the first month - Profit of $/€2500 (after deducting stocking costs) - Net Profit of $/€ 1500 after marketing costs. - ROI of 1500/10000 = 15% monthly ROI
Note this example is quite simplified, in reality you would also have recurring costs, such as salaries, maintenance and hosting fees to be paid. But since you know at point of sale the profit made per item. ROI is quite simple to calculate.
You’ve primarily built your websites to obtain leads, you’re not expecting any sales through the website itself. So how can you calculate return on investment?
Know and understand all your costs.
The cost of a sale, is not just the cost of the lead obtained from the website but also the time that your staff spends to convert a lead into a customer. If for every 5 leads you get a real customer, and your salesperson spends an average of 20 mins on call with each lead, that’s an hour of your employee’s time per sale, plus the cost of the call.
Get your staff to track your leads.
Plenty of companies, just push to open an account without understanding or noting from where the client came from. Understand where your client is coming from, the source is very important in your attribution model, and not all customers from your website are the same. The cost of a lead who visited through Organic Search is potentially much cheaper then one you’ve obtained through a paid medium.
Calculate the value of a customer
When you’re offering a service the value of the customer is not always equal, for example if your company handles Investments, the value of the customer to your company is probably related to the amount of money invested with your company. However the real value will depend on your pricing model, if you’re charging a performance fee, your actual return will vary according to your performance.
If you’re making projections, it’s fine to use historical information and informed guesses. This will still help you give a better value to your customer.
Calculate the total ROI
Similarly to the e-commerce website, divide your net income by the initial investment and you have your ROI for developing the website.
Your website is not meant to bring business in, your website has been built soely to support other business operations and provide general information to both existing and prospective clients. As you are not generating any leads through this website the intrinsic value of the website can seem to be somewhat low. But what are your goals for the website?
- A portal for existing customers to obtain information, documents and company information
- A portal to substantiate claims made to prospective calling via cold calling or other lead generating mechanisms.
This type of website is the supporting act, a lot of websites have taken this nature, and their worth is difficult to evaluate. However there is a way to calculate ROI.
List all the resources that you are providing through the website.
- User Guides
- Spec Sheets
- Video Tutorials
- Product Comparisons
- Pricing Information
- Contact Information, etc
Each of these pieces of content are possibly essential in closing a sale, did you ever not have a website? Or rather did you have clients with whom you’ve dealt with directly?
If yes I’m sure your salespeople can tell you how much time is spent giving out this information. A prime example would be the FAQ, their name inherently suggests that your salespeople have received plenty of similar queries. Answering to a question on a call can take anything from a couple of minutes to 30 minutes depending on the question and the user’s knowledge. Should the FAQ answer his question that is 30 minutes that your salesperson can dedicate elsewhere. A user guide, could take something like 2 minutes to send back to a client via email, but a having several requests could eat up your salesperson’s time.
So you’ve now made a list with the time spent per item, and I’ve made an example below.
- FAQ - 5min per question
- User Guide - 2 min per guide
- Spec Sheets - 2 min to send / 5 mins on call
- Video Tutorials - 5 min sending a link / 30 min giving instruction on phone
- Product Comparisons - 15min explaining difference
- Pricing Information - 15min
For the purposes of this example I’m also assuming that a salesperson costs $/€ 30/hour
As you can see it takes longer to answer on a call, as you don’t want to just send the client a link, doesn’t really look professional. For that reason I’ll assume that it will take as much time to serve a client properly.
Now have a look at your website analytics, and see how many people read your FAQ articles, download a user guide etc and make a list, or simply export a report. I’m providing an example list below.
- FAQ - 100 questions read
- User Guide - 30 downloads
- Spec Sheets - 10 downloads
- Video Tutorials - 15 videos viewed
- Product Comparisons - 25 explanations
- Pricing Information - 50 requests
Now take each section, convert that into time providing the information via a call and / or email whichever best represents your company. Then multiply that by the cost of your salesperson (I’m using 30/hr)
- FAQ - 100 * 5/60 * 30 = 250
- User Guide - 30 * 2/60 * 30 = 30
- Spec Sheets - 10 * 5/60 * 30 = 25
- Video Tutorials - 15 * 30/60 * 30 = 225
- Product Comparisons - 25 * 15/60 * 30 = 187.5
- Pricing Information - 50 * 15/60 * 30 = 375
With these numbers your website has saved you the equivalent of $/€ 1092.50 in a single month.
Assuming you’ve spent $/€ 10,000 on developing your website. You’re getting a return on investment of 10.9% per month. Within the first year of your website being around you would have saved around $/€ 2,200.
In most cases websites tend to be a mixture of the three, however in either case you can measure the return on investment of your website. Not sure how? Get in touch and I’ll guide you through.