Value & Return on Investment

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:

1. Increase the number of visitors to your website.
2. Increase the percentage of customers who convert.
3. Increase the value of the conversion.
4. Reduce the costs associated with each step.

4. 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.

4. 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.)
4. 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.