ROI First

Welcome to Rules for Websites, a series of bite-sized, must-do things to keep in mind when you’re working on your website. Presented by Rocket Lift, an agency that serves purpose-driven organizations with web services and marketing.

Here’s your first rule. We call it, appropriately enough, ROI First.

Return on Investment is a term from corporate economists that all small business owners should know. It means the value you earn from making an investment, as a percentage of your investment.

If you invest $1 and end up with $2, you’ve created a whole dollar out of the dollar you started with — that’s a 100% ROI. (Not bad.)

What’s this got to do with websites?

Glad you asked.

If you’re a business and you’re working on your website, you’re likely doing so for one of three reasons:

  1. You want to raise your profile online
  2. You want to sell something online, or
  3. You want to deliver service to your customers.

No matter which of these apply to you, each of these will provide business value that you can calculate an exact dollar figure for.

Let’s say your website’s job is to reach more customers online.

And let’s say a new customer is worth $1,000 to you per year on average, which you calculated by dividing your total revenue last year by your total customers last year. And finally, let’s say your goal for your new website is to contribute 10 new customers to your business per month.

Ten times one thousand, that’s $10,000 in new revenue for your business. Now you have a target return for the website: You want $10,000 in new revenue per month, or $120,000 per year, to be generated by your website, a new asset you’re investing in.

Depending on your website’s job, your target return may look and sound a lot different.

For example, maybe you provide a lot of customer service online, but your existing website isn’t serving you.

Instead of revenue generated, your website return will need to be calculated based on how much customer happiness is worth to you.

Whatever your return, once you have it calculated, now you can set a target budget based on the ROI you want.

The ROI that makes sense for you will depend on a lot of factors, not the least of which are financial figures typical for your industry, and your specific financial situation.

But there are three things you want keep in mind:

  1. You obviously want your ROI to be positive, so you aren’t losing money on your investment.
  2. A higher ROI is better, since we’re talking here about making investments and seeing a profit.
  3. Unless you have unlimited investment funds, (lucky you!) you will want to invest your financial resources in the greatest ROI opportunities you have.

Let’s say you only have $30,000 to spend on a website, and you expect your website to have a 300% return as a marketing vehicle bringing you new customers.

That’s not bad, but suppose you are a manufacturer, and $30,000 will also buy you a new piece of capital equipment that will improve your efficiency so much that it actually has an amazing 500% ROI. In that case, investing in that equipment is the smart choice for you from an ROI perspective.

And that’s why we call this the ROI First rule.

Before you get started investing in a new website project, you’ll want to make sure it’s the right thing for you to be focusing on from an ROI perspective. Everything else — its strategy, its design, content, development — should come later.

This will you make sure you’re focused on the right thing.

It will ensure the value of the website is clear to everyone involved. And establishing ROI First will give your website team clear parameters to work within, to be sure what you end up with meets your business needs.

When you calculate this for your own business, you’ll want to get more sophisticated than the simple examples I’ve used for illustration purposes. For example, you probably want to look at customer value, instead of revenue, to take into account your cost of goods and look at what a new customer contributes to your bottom line profit, instead of your top line revenue.

And, if you develop long lasting relationships with customers, you’ll probably want to calculate lifetime customer value, instead of what a customer is worth to you in a single year. We generally look at CALV — Customer Average Lifetime Value — when walking our clients through this calculation.

Let’s sum up.

The ROI First rules means: Before you get started on your website, know what you expect your website to contribute to your bottom line, and how. That’s your website’s return. Then, set your website budget. That budget is your investment in the website. Then, do the math. Make sure your return on investment is favorable.

This way, you’ll avoid overspending on your website and web marketing, and you’ll make sure you’re spending appropriately to make sure you get an appropriate return. Then, you can get started planning your website development project.

That’s the ROI First Rule.

What’s really important here is simply to know your goal before you get started. By expressing it in terms of ROI, you can establish commitment to that goal.

If you have a goal, but you can’t express it in terms of ROI, how can you be confident as a business manager that you’re investing wisely?

Expressing your goals in terms of ROI is powerful for clarity, confidence, and commitment. That will set you on the right track as you get into website planning and execution.

ROI First in a nutshell

  • Know your website’s goal.
  • State it financially if you can.
  • Calculate your website’s target ROI.
  • Use ROI to establish your budget, to ensure the website contributes positively to your financial success.
  • Do this as a first step, before you do any other planning for your website.

ROI First.

That’s your first Rule for Websites, from Rocket Lift, an agency that serves purpose-driven organizations with web services and digital marketing. For more Rules for Websites, visit rocketlift.com/rules.

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