The elusive art of calculating a site's return on investment.
Web Awards: ROI
Ipswitch is a grand master of the elusive art of calculating a site's return on investment
Ask Dennis Mulryan, chief operating officer of Ipswitch Inc., how much his company's Web site cost to develop and launch, and he'll tell you $190,000. He'll call that figure "relatively modest" and point to a list of cost-cutting measures the Web site has allowed his company to undertake. He will also assert that last year the site accounted for some $13 million worth of both direct and indirect sales, more than 60% of the company's total revenues.
Now ask Mulryan to tally his company's total out-of-pocket expenses to run the site last year. This time you'll get a very different number: nearly $1.3 million. In addition, Ipswitch had another $150,000 or so in noncash expenses related to the site, including write-offs and amortization of earlier investments.
At the end of the day, Ipswitch still comes out ahead. And the software vendor, based in Lexington, Mass., is the first-place winner of this year's Inc ROI Web award. But the split between those two numbers illustrates how the cost of building a Web site is just a small portion of the total ongoing expense of keeping a site running. It also illustrates how elusive a true calculation of ROI for Web sites can be.
Two lessons emerge from the Ipswitch story. First, to improve ROI, keep your Web site's costs as low as possible. Second, the real costs of running your site are probably a lot higher than you expect.
Roger Greene, president of Ipswitch, knows well the thorny brambles of calculating Web costs.
The importance of ROI calculations has been driven home by the dot-com implosion. For many dot-coms, ROI never seemed all that important. Extravagant spending on bleeding-edge technology and flashy graphics was the name of the game. When anyone bothered to measure anything, it was with trendy Web metrics such as page views, click-throughs, and number of visitors. Although those numbers can provide a snapshot of a site's traffic, they fail to answer a much more important question: does the site take in more dollars than it spends on its development, launch, and operation?
But even that question alone is too simplistic. To calculate a Web site's ROI, you need to ask questions in these three areas:
Costs: How much money has your company spent to develop and launch its Web site? And now that the site has been launched, how much do you spend on its daily operation, including staffing, systems, maintenance, and improvements?
Revenues: How much in sales and other income can you attribute to your company's site? How much of that is direct -- sales taken in from an E-commerce site -- and how much is from sales leads generated online?
Savings: To what degree does your company's Web site reduce or control expenses, whether by streamlining business processes or by other means? What dollar figure can you put on those savings?