It’s not uncommon for us to be asked by a client looking to build a new website whether they should start this year or leave it till next year. In fact, we recently came across this very question on a project we were working on.
Not having a good answer at my fingertips, I set about thinking of a way to answer this question on the train ride home. What resulted was a calculator that can help you weigh up the value of timing in a new website project.
Before we get to the calculator, however, we need to start with some accounting & economics.
The traditional way to value a website
The return on investment (ROI) for a website – or any asset – purchased by a business is measured by its net contribution to profit over the lifetime of the asset.
To ascertain the value of a new website, we would need to make assumptions and estimate what the profit might be without the website, and then again with a new website.
The (scary-looking) formula for calculating the new profit would look something like this:
Simply put, if a new website contributes a combined addition to revenue greater than the investment required, it will have a positive return (or ROI) for your business.
So how does a website add to my bottom line?
There are a variety of ways websites can provide return for your business. The core, quantifiable ones are:
- Increasing the likelihood of converting a visitor into a customer
- Increasing customer retention, and, in turn, increasing customer lifetime value
- Increasing average customer spend through active encouragement towards higher priced products
We also see value created through decreased costs, for instance:
- Decreasing costs for a business’ call centre due to a more informative website
- Reducing subscription costs if the new website replaces tools that were used for things like building landing pages etc.
- Non-monetary savings through increased workflow efficiencies, ensuring wage expenses are more effectively spent and have a higher correlation with increased productivity.
On top of all this, a website is typically kept on a company’s balance sheet for three years, with the costs spread over the same period. Therefore when calculating the changes in revenue/cost, decision-makers should be looking at a three-year term, or, calculate the return for one year and multiplying it by 3 for the ‘cheats’ way.
Okay, why this year?
The simple answer is that you should build when: Sure, it’s only a slight change from the traditional way of thinking, but we’ve now moved from a one-year snapshot view of transactions to looking at the lifetime value generated within one year.
Enough from us!
Head on over to the calculator here and calculate how much value you could create this year with a new website. Don’t worry; this isn’t a lead generation exercise so we won’t ask for any personal details – just plug in a few of your business’s relevant figures and it’ll do all the math for you! Easy.
Alternatively, I’ve also created a spreadsheet which allows you to account for your WACC (weighted average cost of capital) which you can download here.
If you want more of a detailed explanation on the thinking behind this post, head over to the original on LinkedIn here.