How To Calculate The Value Provided By Your Website

Posted by Ken Semple

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How to calculate the value provided by your website

One of the most common initial questions we're asked by prospects is "how much for a website?". This is a challenging one to answer before we've had a conversation about the scope of the project. I like to start at the value provided by the existing website and the business goals for the new website.

When the conversation is turned to one of value/investment rather than pure cost we often find the scope of the project evolves. Understanding what the website is producing and how much can be safely invested to achieve the business goals for the website puts you in a powerful position. A position which makes it easy to make the right decisions about your website redesign rather than making decisions hampered by budget constraints.

We're not used to thinking about the value produced by our website

The first website built by most businesses wasn't much more than an online brochure and didn't work real hard to attract visitors and convert leads. Back then it was about "getting online" rather than providing value to the business.

Since that first website, I bet that every time you rebuilt your website you made sure it would work harder to attract visitors and convert leads than the previous one.

So things have moved on, you don't have a website for the sake of having one anymore, particularly now that people have moved rapidly to researching and purchasing online.

You may not know it yet but your website is most likely your most important digital marketing asset.

You're probably looking into this because you're redesigning your website

Why are you even reading this post? My guess is that it's time to redesign your website again and this time you want to get it right.

This is quite common, many businesses don't really consider what their website is achieving for their business until there is a desire to rebuild it.

Whatever the reason you have for looking into a website redesign, this time look at the value it can provide to your business.

Look at the current performance & determine goals

The first step in determining the value provided by your website is to look at some basic website statistics. Dig into your analytics, and grab the typical monthly number of website visitors and leads. Use your CRM to determine the number of customers which are produced from website leads each month.

Determine a goal for the number of customers which you need to be produced by your website.

Once you have these numbers, you can use your current conversion rates to calculate how your website visitors and leads need to increase in order for you to achieve your goal. The example below shows a huge gap between the current and goals for website traffic and leads. You might think these goals are too ambitious, however they may not be when we apply benchmark conversion rates from modern digital marketing websites.

Current website performance and goals for website performance

 

The image below shows what happens to the required website traffic and leads once we apply benchmark conversion rates. Suddenly what looked like unachievable goals are achievable again. How much can we safely spend in order to reach these goals and still get a great ROI?

We need to calculate the value the website provides to answer that question and we'll do that next.

Current website performance, goals and results after optimisation

 

Calculate the value your website provides now and will provide when you reach your goals

The customers generated by your website may buy only once from you, they might also make repeat purchases over a period of time so we need to consider both types of customers in our calculations. The value of each customer to your business is the total revenue they generate for as long as they remain a customer minus costs.

The image below continues the example showing the average Lifetime Value (LTV) of customers for this business, and the website value per month is calculated using a Gross Margin of 20%. If you don't know the Gross Margin for your business, take a look at the financial statements in the annual report of a public company in your industry. You could also use Google to search for the typical Gross Margin of companies in your industry.

 

How to calculate the lifetime value of a customer and determine the value your website is currently producing

A little analysis shows that your website is doing more work for your business than you might think. Now we can expand on this by including the figures for the website goals and determine a spend to get from current to goals whilst achieving a great ROI.

We use the average lifetime value of a customer to determine how much we should spend on redeveloping and improving the website. Using 10% of the average customer LTV is roughly the same as saying a 25% return on that marketing investment if the LTV is over 10 years. If the LTV is a shorter timeframe, the return is even better.

Multiplying 10% of the LTV by the incremental customers, goal minus current, we get a suggested monthly spend for website improvement and marketing. Is this more than you expected? My guess, yes it is.

 

Value offered by website now and after achieving goals. Also shows the suggested spend to get there

 

The benefit of knowing the value produced by your website

Once you know what your website is producing for your business, what it can produce and a realistic spend to get you there, you have a business case for upgrading your website and starting that content marketing or inbound marketing program you've been thinking about and haven't been able to justify yet.

Take these numbers to your boss and you're going to get the nod on that website update you know you need.

Schedule a Free consultation and we'll work through this with you for your website.

  

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Topics: Website Design

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