From measuring its profitability to understanding which activities have the biggest impact on your revenue, calculating your website’s return on investment (ROI) has many benefits. Yet, a lot of companies struggle to accurately measure it.
In fact, nearly 40% of marketers grapple with calculating ROI correctly. At the same time, measuring ROI is becoming more important than ever. As budgets are slashed, marketing departments need to prove they are revenue generators and not cost centres.
Over the years of helping top performing companies measure the ROI of their digital efforts, I was able to determine the reasons some businesses struggle. It comes down to various factors, including companies not trusting their data sources, not having the data on-hand and ultimately not knowing how to calculate ROI.
In this blog, I will show you how to measure one of your most important assets online, your website. Unlike other social media platforms, your website is owned by you. It’s key to building and promoting your brand identity online.
However, you want to make sure it’s not just collecting dust, you want to make sure it’s actually generating you money in some form or the other. Measuring ROI is more straightforward for eCommerce websites, and more of a challenge for services or other non eCommerce-websites – so we’ll make sure to cover those too.
What is Return on Investment (ROI)?
Return on Investment, ROI, is how much your business earns for the money you invest. It’s how you measure how efficient your investments are.
Measuring website ROI formula
The formula for measuring ROI is:
Let me give a quick example. Let’s say an eCommerce brand had website costs amounting to £120,000 over the course of a year (this includes everything from designing to maintaining the website). In that same year, that brand’s website brought in revenue of £400,000.
Here’s how we can apply the ROI formula:
(£400,000 – £120,000) / £120,000 x 100
ROI = 233%
It’s important to note that whilst ROI is an important metric for benchmarking your website, there are many benefits your website brings that are difficult to quantify. This includes everything from brand awareness to reducing customer support costs.
The example above was very simple. I’ll discuss how to calculate ROI in more detail below, but first, let’s talk about how it might not be straightforward
Why is measuring website ROI difficult?
As mentioned above, it’s important to consider other purposes and goals of your website beyond sales. Some of these benefits include:
- Lead generation
- Increasing quality of leads
- Customer nurture and increasing lifetime value
- Brand awareness
- Audience building
- Reducing customer support costs
These other benefits can be harder to measure. Despite this, it’s still a good idea to put a value on your website. How do you do this? By assigning a value to the interactions that users have with your website and tracking these with Google Analytics (more on this later).
Unless you’re solely interested in eCommerce ROI, you will have to accept that the values will be estimations and there will be some assumptions involved. However, these are still valuable as they help you understand the contribution of your various marketing tactics.
Remember: Your website is part of the wider sales and marketing strategy, so it’s also important to look at trends and learnings (they can help sales, product development and operations).
Calculating your website costs is easier than calculating the benefits. For costs, look back at your financial records to determine how much was spent within the timeframe you are measuring. Some website investments to consider include:
- Site design
- Site maintenance
- Web hosting fees
- Agency fees for SEO and marketing strategy support
- PPC ad costs
- Content development
- Internal staff
Take into account that larger, one-off investments (like a new website) should last more than one year. So, when calculating annual costs you should divide the total by the number of years you expect it to be in use.
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I mentioned before that revenue can be tricky for non-eCommerce sites. However, it’s not impossible. Below is a list of potential website and business models and how you can measure their revenue.
Once you’ve got that, you can calculate your website ROI. Make sure you deduct your website costs from the revenue to get to your net benefit figure first.
eCommerce website revenue
To measure the website revenue, calculate the profits made via sales on the website within the timeframe that you calculated the costs (e.g. the last year).
Lead generation website revenue
For many B2B businesses, lead generation is the main source of revenue from the website. To assign value to your website leads, you need to know the average customer value (lifetime or over a year) and the lead to sale close ratio.
The revenue formula for lead generation websites is:
Number of leads * Average customer value * Close ratio = Revenue
With web analytics tracking, you can also identify variations in average customer value based on website content. For example, an enquiry form on a product page will have a different value to a general newsletter signup on your homepage.
SAAS website revenue
With SAAS websites, calculating revenue will depend on the company’s business model. However, it’s typically a mix of the above two calculations. Often customers can purchase the software directly via the website (following the eCommerce model). However, sometimes they also start a free trial or require a consultation first (following the B2B model).
If your website integrates both direct eCommerce and lead generation, then calculate each separately and add them together. Then, plug this value into the formula (benefit/cost) to determine the ROI.
How to measure intangible website benefits
Earlier in this post, I listed various website benefits that are difficult to quantify. So how do you go about determining which website benefits to include?
To do this, you need to first decide on the purpose of your website. Perhaps one of your website’s purposes is to enhance brand awareness. Next, you need to figure out which KPIs you’ll use to measure the impact. For example, KPIs you may want to track for brand awareness include the click-through rate, unique users, and impressions of your website.
ROI should be just one of the success metrics you will apply. If, for example, your ROI has been increasing for the last two months, but your number of unique users has been decreasing, it might mean that your ROI has a lag effect and will also decrease in a few months time.
Now that you have your ROI figures, you can determine whether your website is generating revenue or whether it’s costing you money. If it’s costing you money you need to determine the ways you can optimise it and reduce expenses.
Overall, ROI is useful for tracking your website performance over time. However, it’s usually good to supplement it with other metrics to make sure it accomplishes wider company goals and purpose.
You can also determine based on the above calculations where your marketing resources should be spent. If traffic to your website is low then maybe you need more top of funnel content. If the closing ratio is low then maybe it’s time to review the sales processes.This was a simplified version for the sake of example, I know first-hand that the reality of measuring how successful your website is can be more complicated. At Business Ahead we specialise in showing companies how to measure website performance and how to link it to your business success metrics. If you’d like to find out more about how we create unique data-driven roadmaps for my clients then get in touch!