The famous quote has been attributed to W. Edwards Deming, the father of modern quality management. Deming was heavily involved in the economic reconstruction of post World War 2 Japan that saw the country become the world economic powerhouse of the 1960s, 70s and 80s. Deming had the fundamental philosophy that data measurement and analysis were essential to attaining superior performance in every facet of business.
This fundamental principle still holds strong today for any online business presence. A significant number of businesses have very little idea on how their business website is performing; and more importantly identifying ways to improve it.
In my experience, a lot of businesses, in particular small and family businesses start their small business web design process with no real idea of how they will measure if their website in fact ends up being an asset to their enterprise or not.
A business website is infrastructure supporting your operation. It should be viewed as such. Would you launch into spending money on a new building without a proper economic justification based on forecast ROI?
So let’s work through a simple example.
Aimless measurement serves no purpose but to waste time and money, so the first task is to define what is the goal of our site.
Goal Of The Website
What is it that our website does?
- Sell products on-line
- Sell services on-line
- Generate leads
- Build an email list
- Manage customer support
- Take bookings and reservations
A website can do more than one of course, it just means data must be collected and analysed for each goal listed above. Having said that, every site should have a clear primary purpose. There’s no law saying a business cannot have more than one website. Two or three focussed sites for a business are better than a monolith that’s a navigational nightmare for visitors.
As a side note, it’s important to be very clear on this right at the design stage, as it impacts layout and structure of a website, which does have a large bearing on how well the site performs.
After having identified the goal, we need a formula to objectively assess the ROI.
Website Return on Investment (ROI)
To get an idea as to how effective our site is quickly let’s put together a simple formula that will give us some great insights without a lot of computation.
Let’s use lead generation on a per monthly basis as an example.
ROI =(( N x C x $V)/$M) – 1
where
ROI = How many net dollars a website earns per dollar it costs to keep it going.
N = Number of visitors to the site per month
C = Conversion rate. What percentage of visitors turn into buyers.
$V = The average dollar value of each lead from the site
$M = Monthly costs for the site (hosting, updates, promotions, SEO and so on)
Here’s a basic example
N = 1000 visitors per month
C = 0.04 (4%) for lead generation. These are leads that actually turn into buyers or paying clients, not those who make contact and then don’t go any further. This varies widely from industry to industry, so let’s call on some research done by Marketing Sherpa from a Marketing Benchmark done a few years ago to come up with this number.
$V = $50.00
$M = $500.00
From these calculations we get an ROI of $3.00; which means our website earns us a net $3.00 in sales for every $1 it costs us to maintain it.
We’ll take a look at how we can use this number to full effect later on, but next let’s explore how we might collect the data we need. We need good input data, otherwise it’s garbage in/garbage out.
Data Collection
To do this we need to install an analytics package on our website. The staple is Google Analytics, which is free. Some people have an aversion to Google Analytics, so there are others to choose from. Another free package is PiWik (just enter these into your favourite search engine to get more details). Another very good package is Feedjit, but this is a paid service.
These analytics packages will give us a whole host of data that will become increasingly important to analysing the performance of our website. This includes the number of visitors, what search term they used to arrive, what page they landed on and how long they spent on the site to list a few.
So we have a robust way of getting the number of visitors per month.
The next number is conversion rate. We need to separate the leads from our website to those business leads generated by other means if the website isn’t the only means of generating leads. If this is case then we need to create a separate email address, or get a separate contact number to measure this.
The average dollar per sale and cost per month for the site should be easy to work out.
So we’ve got the data and can calculate our initial ROI. We’re now in a very powerful position to work out in relative terms how our website is performing.
Data Analysis
The real power of ROI is gained by using it as a benchmark for a business. Let’s say we’ve gathered some initial data with the following results
N = 1750
C = 1.22%
$V = $50.00
$M = $500.00
Our calculated ROI is $1.14; or net sales of $567.50 for the month.
The first thing that jumps off the page is the conversion rate. It appears to be quite low by our industry standards.
Our first task is to look at our website landing pages, content and structure. If we can improve the conversion rate to 2.5% our ROI jumps to $3.38 with net sales worth $1,687.00 for the month. If we can get it to 3.9% we get an ROI of $5.83 and a net of $2912.00.
We can also look at improving the number of visitors by paid advertising (PPC) or SEO to improve our search engine rankings. This impacts $M of course.
Let’s say we do that and our monthly visitors improve to 3150; with our monthly costs going to $1120. Our ROI has dropped to $4.48 and net sales have gone up to $5022.50. Perhaps we now need to look at the monthly costs in terms of value for money to bring that ROI back up a tad.
This enables us to constantly improve our ROI on our website in a meaningful and sensible fashion.
Conclusion
Don’t be afraid to spend some time and effort into benchmarking your own website and setting about looking for ways to constantly improve it. The ROI approach can be used to help optimize the maximum PPC bid for an Adwords campaign, for example, as well.
The above is a simple and straightforward introduction towards wringing every dollar of profit out of your website.
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