How to Calculate ROI – Introduction
If you run a marketing department, you’re familiar with the hustle required to succeed, and needing to show results for your budget and effort. In this article we show you how to calculate ROI.
We’re constantly talking to existing and prospective clients about potential projects and initiatives. A lot of questions are involved in this process, but there’s one question that we hear more than any other: how will this investment increase sales, decrease expenses, and over all make our business money? This data is called the return-on-investment, or ROI.
Here’s an example: if you were to spend $40,000 on a full website redesign project, how will you know if you’ve made a good investment that is actually delivering value?
There are many ways to calculate and understand the relative value of such an investment. This article aims to walk you through examples of calculable ROI in action so you can more easily analyze the opportunity of any prospective project.
1. Calculating Project Cost to Start
Before you can calculate ROI, you need to first understand the relative cost of your project. For full website redesign projects, average spend can be anywhere from $15,000 – $200,000. It’s important to note that you can find lower and higher estimates, but from our experience a im电竞竞猜靠谱么 website redesign project will fall into this range.
You may want to include near-term ongoing maintenance costs into your calculations as well. Depending on what agency you’re talking to, you may find that they have a lower initial cost but higher ongoing costs, or vice versa. Use common sense when trying to understand the true cost of the project over its projected lifetime.
Below we’ve put together an equation to start from to help calculate these initial numbers.
Base project cost + (Annual Maintenance Cost x Anticipated Project Lifetime) = Total Projected Cost
ROI Calculation Example
Let’s assume you invest $40,000 in a full website redesign project, and estimate a monthly $799 ($9,588 annually) investment for security, maintenance, and support. You also expect this site will last 5 years.
For simplicity, we’ll round up the one-time investment of this project plus some level of maintenance and ongoing improvements to $50,000. There’s your starting point.
2. Establish Universal Goals and Your Benchmarks
In order to determine the value of this investment, you next need to establish project goals to interpret where the value lies.
The most commonly and easily tracked goals include:
Increased lead generation like forms, phone calls, gated content, etc.
- Hard conversions (SQLs): Those who are reaching out and raising their hand to work with you or inquiring to learn more. These leads go straight to your sales team to engage, and are pre-qualified by nature. You may use a tool like CallRail, Google Analytics, HubSpot, or another call tracking technology to track these leads more effectively.
- Soft conversions (MQLs): Those who join your newsletter list at the top of the funnel. They may download a whitepaper, other gated content piece, or may interact with value-added features like a calculator or find a rep feature. They’re likely qualified, but not ready to talk to sales. You will nurture them over time and they should be considered within a redesign to improve your marketing flywheel.
- Increased site engagement. This would include metrics like click-through rate, exit rate, pages per session, average session duration, time on each page, bounce rates, etc. These metrics generally support the two above, as well as sales and leads from other sources beyond your website.
Once your goals are established, it’s time to look at your current metrics. In order to compare future metrics and success of a project, you’ll need to know how you’re performing now. How many visitors are you getting monthly? What number of qualified conversions are you receiving monthly? What’s your current bounce rate? You’ll most likely turn to Google Analytics (or perhaps Adobe Analytics or HubSpot Analytics) to review this basic benchmarking data.
Other tools like heat mapping may uncover additional opportunities to capture value. Hotjar is one very common heat mapping tool with a free version for those just starting out with that technology.
You will also probably turn to Google Search Console (or Bing Webmaster Tools) to review supplemental SEO data.
Third-party tools like SEMRush and other SEO tools will give you additional insight into ranking and competitive performance for both SEO and PPC. Most agencies you’ll talk to have some version of an SEO reporting tool they prefer, like SEMRush.
We’ll consider the most important and quantifiable goals for this example as the number of hard conversions (form submissions and phone calls), and the number of soft conversions (those added to the newsletter list) monthly.
Let’s say you receive an average of 50 soft conversions (MQLs) and 10 hard conversions (SQLs) monthly. We’ll use the primary metric of 10 conversions monthly for the master equation below, though soft conversions could have their own close rate and value, which should then be included in the overall equation.
Now we have our initial project cost and benchmarks. We’re that much closer to our final equation.
3. Determine The Value of a Lead and Your Ability to Close It
We’re getting closer. Next we must look at your average monthly leads and your team’s ability to close them. We’re going to call this your closing ratio. Using sales (forecasting) tools, your team can look at your closing ratio and the average deal size over a period of time.
Some companies may be able to project an average lifetime client value over time, which could be used to help represent the dollar value of a new client. It depends on your business model: if you sell larger, one-time or infrequent projects vs a greater volume of smaller or recurring deals.
You should look at a long enough time period to be representative of your average close rate and deal size. Tools like HubSpot or Salesforce have opportunity pipelines that track this data by default, but you can easily calculate from spreadsheets or other sales tracking tools.
There are other things to consider during this portion of developing your equation, as well. What if you could increase the number of leads to your website monthly? What if the website redesign process instills greater confidence in prospects that you can help them? What if your new positioning resonates better with the people you most want to work with, making them easier to find and faster to close? All of these things would positively impact this calculation in terms of the quality and number of leads.
In this example, your business model is heavier on one-time project sales and less on the recurring or lifetime value of a client. Let’s say you close 20% of your leads on average. In this example, you’d expect to win 2/10 new leads from your website monthly on average.
Let’s also say your average deal size is $50,000 per new deal sold. This allows you to calculate today’s sales related to marketing efforts on your website to $100,000 per month.
4. Pulling It All Together: The Master Equation
At this point we understand the facts of how much the project will cost and where we stand in terms of needed metrics and insight. We pull it all together with a larger, but still modifiable, equation. We recommend using this equation to create a few potential scenarios for your website redesign project. It’s a good idea to calculate multiple outcomes, like a conservative, middle and “shooting for the stars” performance lift scenario.
In general, we’d recommend being realistic with what is possible through a website redesign project, and would steer most clients to aim for a 10-20% lift in lead performance. This can be impacted through the addition of scope, SEO, positioning, messaging, and other feature level items that can be part of your overall project.
Today’s Benchmarks and Metrics Recapped
- Project Cost: $50,000
- Average Number of Monthly Website Leads (SQLs): 10
- Average Deal Value: $50,000
- Average Deal Close Rate: 20%
$50,000 deal value x 10 leads x .2 close rate = $100,000 Total Revenue Delivered Monthly From Current Site
Scenario 1 Conservative: 10% Lift in SQLs
- $100,000 x .1 = $10,000 Incremental Monthly Revenue
Scenario 2 Moderate: 20% Lift in SQLs
- $100,000 x .2 = $20,000 Incremental Monthly Revenue
Scenario 3 Stretch Goal: 30% Lift in SQLs
- $100,000 x .3 = $30,000 Incremental Monthly Revenue
Let’s use the conversavative projection of a 10% lift in performance.
With nearly $10,000 in incremental revenue delivered from the website monthly after undergoing a full website redesign project, you could see a full return-on-investment in just 5 months.
Most of our clients in im电竞竞猜靠谱么 technical industries have longer sales cycles than this, but also much higher average deal values. If a $50,000 website helps you close just one more $500,000 deal per year, you’re already in a 10x ROI scenario within year one.
The additional soft conversions that you pull in each year build over time, increasing the likelihood of close in future years like a snowball effect.
5. Additional Considerations
- “What if you received just one more qualified lead?”
- Sometimes one of the best ways to understand the value of undergoing this type of project is to think, “What if we received one really good, in-target, qualified lead?” Depending on your unique business model, you can imagine the impact of a single lead on your sales goals. If this new site speaks to that potential lead just right and instills confidence that you are the right company with which to partner, that could pay for your project in and of itself and become the flywheel you’ve been seeking.
- “Are there any less commonly tracked goals I should be considering?”
Yes, if you so choose.
These are all valid items to track, and if your company is advanced in tracking some of these metrics qualitatively, you may be able to project additional ROI. However, most small to mid-size businesses aren’t formally tracking these metrics, and instead you must consider these as qualitative items that you could positively affect with undergoing your website redesign project.
- Improved brand awareness
- Reduced admin/overhead to manage the site
- Decreased customer service/support
- Lower ongoing maintenance costs
- Sales close rate
- Perhaps one of the most under-considered goals of a website redesign project is sales enablement and marketing automation. Two very related concepts, this is the concept of introducing automation (or efficiency) in how your marketing and sales teams interact with prospects and customers.
- Yes, if you so choose. These are all valid items to track, and if your company is advanced in tracking some of these metrics qualitatively, you may be able to project additional ROI. However, most small to mid-size businesses aren’t formally tracking these metrics, and instead you must consider these as qualitative items that you could positively affect with undergoing your website redesign project.
Website Design ROI In Summary
There are both quantitative and qualitative metrics to review in calculating the ROI of your potential website redesign project. Because all businesses are different, there will be unique calculations for your particular project and business model. The equations in this post will help you a long way on your journey toward calculating project ROI.
We do work like this day in and day out, so don’t hesitate to contact us. We’d be happy to talk about your business’s needs and how our guidance can help you develop projects that benefit your business and give you the ROI you’re looking for.