Any modern business has a website. Having one is crucial to remain competitive in the information age. But simply having a website does not guarantee success. A website must be optimized and newly designed so that it benefits your overall business. If it does not, having a website is not worth the investment. It must offer a positive return on investment (ROI) to be worthwhile.
Knowing the ROI of your website is essential to gauging its value to your business. Of course, some websites lend themselves to calculating their ROI more than others. For example, eCommerce sites offer concrete data on sales, making it much easier to determine their worth. Other websites, like blogs, are harder to value because they support your business more indirectly via branding, or advertising, for example.
No matter what kind of website you have, the following article offers general principles for calculating its ROI. That way, you can know whether to invest in a new website or optimize an existing one.
First, let’s define website ROI. Website ROI measures the efficiency of a website. It tries to calculate the benefit of a website relative to its cost. The basic formula for calculating website ROI is the profit generated by the website divided by the cost of the website. Website ROI can be expressed, then, as a ratio: website profit / website cost.
Make sure not not to confuse website profit with the current value of the website. Website profit refers only to the money the website generates, note its total value. A more detailed website ROI formula, then, looks as follows:
Sometimes Website ROI is expressed as a percentage. To show website ROI as a percentage, simply solve the ROI ratio. For example, if your website ROI ratio were $100 / $1,000, then solving the equation would yield 0.1, in other words 10%.
However you choose to express website ROI, it’s important to know what the metric means. If you have a negative ROI, your website is not worth the investment. If you have a positive website ROI, your website adds value to your business. However, a positive ROI does not mean your website could not be improved. There is always room for improvement, and increasing the ROI of your website should be a constant goal.
Calculating website ROI is easier said than done. We’ve gone over the basic formula (website profit / website cost), but there is a lot that goes into the numerator and denominator of that website ROI ratio.
As for the denominator, determining the cost of a website is relatively simple. The harder part of calculating website ROI lies in the numerator, quantifying how much profit your website brings in. This is because several factors affect your website profit, and it can be hard to know which factors to attribute profits to.
Despite the challenge, we have some general guidelines for determining website ROI. For a basic approach to calculating website ROI, follow these 6 easy steps:
Knowing the cost of your website requires adding up all of the costs associated with your website, like its domain, hosting, design, development, and ongoing support and maintenance costs. With good record keeping, these numbers are usually easy to access. Some of these costs are one-time costs, for which you undoubtedly have a receipt; others are ongoing costs that you can easily verify in your bills. The formula for determining the cost of your website will look something like this:
Development/Design + Domain + Web Hosting + Support/Maintenance = Website Cost
Website traffic refers to the amount of people visiting your website. You can easily retrieve this data through web analytics tools like Google Analytics, Adobe Analytics, or HubSpot. The best thing to do is to determine the average amount of visitors to your website per month. If this number is not readily available, simply divide the total number of visitors to your website by the number of months the website has been active:
Total Visitors / Age of Website in Months = Monthly Website Visitors
Next, you want to determine how many visitors to your website turn into leads. This is your website’s conversion rate. To do this, first determine how many visitors respond to your website’s calls to action (CTAs). CTAs can include any of the following:
Add up how many responses to CTAs you get per month. Then divide this number by your monthly website visitors. This is the conversion rate. To give you an idea, good conversion rates average at around 2 to 5%. But the top 10% of websites have conversion rates of 11% or more. So aim high because the higher your conversion rate, the higher your website ROI will be.
Conversions per Month / Monthly Website Visitors = Conversion Rate
Once you have your conversion ratio, determine how many leads turn into customers. This is called the closing ratio because it’s the rate at which enquiries turn into closed sales. For most industries, closing ratios range between 20 and 30%.
Total Successful Conversions / Total Leads = Closing Ratio
Before your calculations thus far can do you any good, you must determine the value of a customer. The way to calculate customer value varies greatly from business to business, but a good metric to use is the average customer lifetime value (CLV). The CLV gages the total net value of a customer to your business over the span of your relationship with them. The simplest way to calculate CLV is to multiply the annual revenue generated by a customer with the length of your business relationship with them and then subtract the cost of acquiring the customer:
Annual Revenue per Customer x Customer Relationship in Years – Customer Acquisition Cost = Customer Lifetime Value (CLV)
Finally, you are ready to calculate your website’s ROI. With the data collected so far, you have a better sense for your website’s efficiency and the required data for the last equation in assessing the ROI of your website. Here it is:
First, multiply your average customer value with annual customers generated. This will give you your average annual profit. Divide your annual profit by the annual cost of your website and you have your website ROI.
(Average customer value x annual customers generated) / annual website cost = website ROI
If you complete the 6 steps above, you will better know how much your website contributes to your business. Of course, there are other factors that affect your website’s ROI, but these are the most important ones. If you can determine customer value and your website’s costs, traffic, conversion rate, and closing ratio, then you are off to a very good start.
Now that you know how to calculate website ROI, the next step is to maximize it. Before we get into things that will boost your website ROI, let’s first go over some threats to your website ROI that you should avoid:
The functionality of your website is more important than its design. Even if you have a pretty website, if it does not have a range of functions that are intuitive and practical, website visitors will be left wanting and your website ROI will suffer.
So don’t allow your web design ego to take over when what your website really needs is more functionality. And if you hire a web designer, make sure to communicate your needs clearly. Miscommunicating your expectations can lead to a website that may look nice but is not what your business needs. Functionality should be above all.
But even if it comes second to functionality, website design is still important. Though website design is an art in and of itself, here are some basic things to avoid in your website design:
Finally, beware of bad content. Your content should be written for people, not search engines. Of course, you want your content to be recognized by web search queries. After all, this is what will attract organic traffic to your website. However, if your website is saturated with poor-quality content, visitors will notice. As the adage goes, quality over quantity. Your website visitors will appreciate it.
Along with avoiding superficial content, you should also resist spending too much money to be at the top of search engine results. Often, this can be counterproductive as many users skip the first search results anyway, knowing that many of them are ads.
Ultimately, cater your content for your target audience. The best writing won’t do any good if misdirected. So make sure you know your audience and play to their tastes, wants, and interests. Well-written content that is focused on a specific audience will only increase your website’s ROI.
Now that we have gone over some pitfalls to website ROI, let’s talk about ways to maximize your website’s ROI. Believe it or not, there are several things that can increase your website ROI, even if you already have a good ROI rate. Here are just a few:
Google Analytics Audience Overview
Now that you know how to calculate and improve your website’s ROI, you can take your business to the next level. Your website ROI is integral to your business’s success. So don’t overlook this important metric.
If you need more help maximizing your website’s ROI, Dev.co can help. Dev.co prides itself on helping businesses optimize their website’s search visibility, mobile-friendly design, secure data transmission, loading speed, and calls to action, all of which positively affect website ROI. So don’t lose out on important website profits when you can turn your website into a money-making machine. Contact us today to get started.
Ryan is the VP of Operations for DEV.co. He brings over a decade of experience in managing custom website and software development projects for clients small and large, managing internal and external teams on meeting and exceeding client expectations–delivering projects on-time and within budget requirements. Ryan is based in El Paso, Texas.