THE THING THAT MATTERS: RETURN ON INVESTMENT
If I asked what you wanted to get out of reading this book, what would say?
The answer, I guess, would be “a successful website”, or maybe a “more successful website”. But… what does that mean? What does success actually look like?
Do you want more traffic? Do you want people to spend more time on your site? Do you want to be higher up the search engine rankings?
All good ideas. But also… all wrong.
I’ve worked with lots of different companies on lots of different projects. At the start of the project, there will be a huge number of competing priorities, a plethora of “must have” features, and dictats coming in left, right, and centre. The website is the business, so everyone wants to have a say.
That is, of course, before the site goes live.
Once the site is live, there is one metric and one metric only that people then want to talk about – return on investment.
Return on investment is measured in pounds, or dollars, or euros. It’s the simple measure of how much the site generates minus how much money the site costs to run.
Ben Hunt-Davies asked, “Will it make the boat go faster?” I like to ask, “Will that sell more boats?”
To get a return on investment we need measurable conversions – points at which the “visitor” becomes a “customer” and we can put a value to it.
You need to work out what your conversion point is – it might be a sale, it might be the completion of a sign-up form, or downloading a file. Whatever it is, the only true metric of whether or the not the website “works” is the total value generated by visitors reaching these goals and being converted.
All other metrics are steps before or after this point, either contributing to or being a consequence of this one crucial point. I’ve seen clients debate for days the shade of blue on a page, never once asking what shade of blue is most likely to get a customer to buy something (I know the answer to this, but I will take that secret to my grave).
That same client was banging the door of the office down, figuratively speaking, six months after launch wanting to talk about increasing website sales.
Like I say, once the site is live everyone gets a lot more focused on what really matters.
Smart projects, and smart website developers, tie everything back to the ROI from day one.
If you didn’t do this, it doesn’t matter – what’s important is that you do this as of now and you keep your focus on this indefinitely. The only measure of success for your SEO project is Return on Investment.
But wait, my SEO consultant is telling me that metric X is more important than conversions right now.
They’re lying, fire them.
The Four Things You Can Do About Value & Return on Investment
Just as ROI is calculated as how much value the site generates minus the costs of running the site, there is also a simple equation for working out how much value the site generates, and it has just three variables.
Visits x Conversion Rate x Conversion Value = Value
So, if I get 100 website visitors a day, and I convert 2% of them at an average order value of £20 I get…
100 x 2% x £20 = £40
The fourth thing you can do is to reduce costs.
There are acquisition costs from cost per click marketing, social media advertising, organic SEO consultancy, and the costs of reasonably priced books on SEO that will transform your life forever (like this one).
There are conversion costs in terms of offering discounts and incentives and for payment processing with payment providers.
There are costs that directly reduce conversion value as well: costs of products, cost of shipping, handling, etc.
So, if I get 100 website visitors a day, and I convert 2% of them at an average order value of £20, and I spent £5 on marketing and the products cost me £2 each I get…
(100 x 2% x £20) – £5 -£2 – £2 = £31
You want a more successful website? It comes down to four things:
- Increase the number of visitors to your website.
- Increase the percentage of customers who convert.
- Increase the value of the conversion.
- Reduce the costs associated with each step.
The Jurassic Park Test
“Your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.”Dr. Ian Malcolm, Jurassic Park
Anything you do to your website, anything at all, should be aimed at achieving at least one of these four aims. If you don’t know why you’re about do something to your website and how you are going to measure how effective that thing is, here’s a simple piece of advice:
Don’t do it.
The fifth reason to do something
There is one other good reason to do something to your website and it’s actually the one that could have the biggest impact on the calculation… system risk.
Let’s assume the numbers we used in the past example are for just one day. Let’s also assume that every other day goes just like the one before and we live for a year in some strange, Groundhog Day world where each day brings the same sales as the day before.
Where do we end up?
((100 x 2% x £20) – £5 – (2 x £2) ) x 365 = £11,315
Now let’s imagine that, actually, our website is down 10% of the time. If we’re lucky, that only costs us 10% of the sales.
((100 x 2% x £20) – £5 – (2 x £2) ) x 365 = £11,315 – 10% = £10,183.50
You’re only going to get a Return on Investment from a website that is up and running. Eliminating or mitigating technical system risk is vital to protecting your ROI, as is ensuring that your website is compliant with all legal requirements.
(And, yes… I know you’ve “saved” the money you would have spent on advertising and you still have the product, but I’m not interested in the cash we already have and the stock in the warehouse. We want to generate sales – that’s the lifeblood of the business. Inventory doesn’t sit there silently, storing product costs money too.)
It may not be as glamorous as “making the boat go faster”, but keeping the boat afloat is important. Nobody wants to be the fastest boat on the ocean floor.