Here are several excepts from an article written for Computerworld by Mary Pratt, Not All Customers Are Created Equal:
IT has to justify every dollar it spends, so it’s crucial to understand how technology investments drive business results. Yet analysts and IT leaders say many companies still don’t calculate ROI on either individual online functions or their overall Web sites, leaving uncertainty about the sites’ effectiveness and what could be improved.
However, there are best practices for measuring Web site ROI. Those practices mirror the considerations and calculations used to rate the success and effectiveness of any other IT investment.
Defining ROIROI is really a measure of what a company cares about, says Michael Kogon, CEO of Definition 6, a consulting and IT services company in Atlanta. “If you measure everything but still don’t know what’s important, then you can’t measure return,” he says.
For a useful measure of ROI, Kogon says, understand the business objectives behind the site and then measure the site based on achievement of those goals. A professional services firm, for example, might have a Web site objective of attracting new customers. It could measure the number of white paper downloads, because experience shows that a certain percentage of potential customers who read a firm’s white papers are likely to become actual customers.
However, ROI needs to look at costs as well as benefits, says Megan Burns, an analyst at Forrester Research. “What does it cost to build this functionality and to maintain it? What does it cost to be used? How many people use it? What’s the alternative if we didn’t have it on the Web site, and how much would that alternative cost us? That’s the kind of thinking you have to have,” she says.
Beyond Purchases
Take, for example, a retailer’s Web site. The retailer can easily determine the value of a purchase online compared with the investment it takes to handle that sale. However, it can also calculate the value of, say, the store-locator function, because a certain percentage of Web site visitors who use that feature will actually go to a brick-and-mortar store and spend money that they might not have spent otherwise.
“What ROI models allow you to do is run through the ‘what if’ scenarios so you know if it’s falling on the positive or negative side and by how much,” Burns says.
Toward Better Decisions
Understanding such ROI dynamics is key to making better decisions about Web site functions, design and, ultimately, spending, says Forrester analyst Harley Manning. “The question isn’t how much you’re spending; it’s, what kind of return are you getting for your investment?” he says. “If I say it’s going to cost you (US)$3 million to redesign your Web site, you’ll say, ‘Wow, that’s a lot of money.’ But if I said, ‘Our Web site generates $12 million in net profit, but we can increase the conversion rate and generate $37 million in net profit with a $3 million investment,’ you’d take that deal any day.”
Check out the complete source article for more detail and examples.
