How to Calculate ROI on Your Website
By Marc Reifenrath on November 1, 2017 in Digital Marketing
It’s always great when you can calculate a true ROI on any business expense. Some expenses are easier to calculate, and more importantly, calculate accurately. With a new website or digital marketing campaign, ROI can become somewhat complex. Ecommerce sites are typically easier to see the return, but not all clients have an ecommerce site. The challenge to developing ROI usually comes down to assigning a value to a lead. In other words: what is a lead worth to the business and how do you establish that value.
There are many questions that you start to ask when you go down the path of establishing ROI.
- What part of the sales funnel did the lead enter in?
- Are there different values depending on where the user is at in their buying process?
- My site doesn’t actually sell anything, can I even calculate ROI?
Calculating the ROI of your Website
Because every site is different and every client is different, there certainly isn’t a one-size-fits-all formula that you can use. First, we need to establish what you would consider to be a positive action that moves the user forward in the buying process and eventually leads toward the desired outcome. We need to look at all of the call-to-action's (CTA's) on your site. A lot of times, although not always, these are the buttons/links you have on the page.
Here are a few examples we would start with:
1 - Determine your goals
It's important to take into consideration your site goals and objectives. We’ll make some assumptions on these, but generally these apply to most websites.
- Provide a positive experience for the user that supports the brand
- Generate qualified leads on various levels
- Have a strong presence and top 5 rankings in the search engines (SERPS)
We now have our main areas that we can begin to create a formula on what each “lead” is worth. Before we do that though, let’s put these various actions into the sales funnel and rank their value as it relates to where they are at in the buying process. We’ll start with the highest likely valued action and work our way down to the lowest.
I would rank the examples from above in this order:
- Lead forms
- Phone Calls (assuming you are tracking this action)
- Contact Us form
- Find a rep or a dealer locator
- Newsletter sign-ups
- White paper download
If you are wondering what my logic is for the above rankings here it is:
- Lead forms means a user has willingly given you their information and desires to engage in a deeper conversation about making a purchase. As a result of this, they have a high value and a high opportunity for you to close that sale.
- Phone calls are almost identical, but I would rank it just below as they may not give you all of their information over the phone, which would not allow you to follow-up. This is unlikely but is the only reason they are a close second in rankings.
- The Contact Us form is likely a user that couldn’t find their appropriate entry point for a direct conversation for their desired next step. This is also likely a very high value opportunity.
- The “Find a rep” or “Dealer Locator” should imply the user is either emailing, calling or stopping into a location. This is harder to track after that action, but we can make some assumptions that this will lead to a desirable action.
- Newsletter sign-ups are great to help nurture the sale and keep your name in front of someone even if they aren’t in the market for your product or service today.
- White paper downloads would be similar to that of a newsletter sign-up. You now have the opportunity to follow-up with that lead depending on what information you gathered prior to the download. One thing to consider with white papers is that these can sometimes be users only looking for research purposes and may not actually be a quality lead. It is still a great tactic but quality just won’t be as high.
2 - Determine the cost of your site
So knowing what we now know above, let’s start to work on a formula. First, we need to assign a cost to the website. Let’s use $20,000 for easy math. Second, we should assign a lifetime expectancy for the site– this is typically 3-5 years, and we will use 4 years for our example.
3 - Determine the value of a client or lead
Third, we need to assign (or figure out) the value of a client.
- How much is a new client worth? And... What is the average lifetime value of a client? We will use $1,000 for a lifetime value of a client.
- What would you pay for a lead generated from a different medium than your website? We will use $100.
Here are the calculations we will use and break it down into a yearly view.
Cost of website/Lifetime expectancy:
$20,000/4 years = $5,000/year.
Leads per month by type:
- Lead forms- 15
- Phone Calls (assuming you are tracking this action)- 25
- Contact Us form- 5
- Find a rep or a dealer locator- 100
- Newsletter sign-ups- 10
- White paper download- 30
4 - Determine your closing ratio
What is your close rate? For simplicity we will use a blended 5% when we average out all of these mediums. You certainly could calculate this for each lead type if you would like and I would encourage that.
So our total monthly leads totals is 185. Here is our next calculation then.
Total Leads x Close Rate = Closed Leads
185 x 5% = 9.5
5 - Calculate your ROI
Now let’s take Closed Leads x Lifetime Value = Monthly ROI.
9.5 x $1,000 = $9,500
Using this method we would pay for the website in the first three months.
A second metric to calculate out of these same numbers would be what is your “Cost Per Lead.” Here is how we would calculate that.
Total Website Cost / 48 Months (4 years) = Monthly Website Cost
$20,000 / 48 = $416.67
Monthly Website Leads / Monthly Website Cost = Cost Per Lead
416.67 / 185 = $2.252 per lead
Considerations when calculating website ROI
There are many things to take into consideration here. We’ve only looked at the hard cost of the website. You can also factor in monthly hosting fees, any licensing/support fees, SSL, domain, your labor cost, etc. Everyone looks at their numbers a little differently and you can build this to meet your needs. At the end of the day, you should have some measure of the effectiveness of your site and how it is impacting your bottom line.