ROI and Performance Framework
It is not a simple step to purchase a website; rather it is an investment with a high initial cost in terms of time and money bringing together aspects such as:
- Design and Brand
- Functionality
- Content
To get the most from a website there are on-going requirements such as:
- Hosting
- Maintenance and Support
- New Development
- Marketing
Whilst these areas are not the normal buzz terms associated with website deployment they start to make clear that a website is a business investment, and as such it should have a measurable business return and should be judged against performance and targets as a normal investment would.
Website Return on Investment (ROI) pulls together various statistics about the website:
- Page views
- Visitors
- Contact forms completed
- Total purchases
These key metrics (and others), are the building blocks of website ROI and performance modelling; however by themselves they are just numbers. Measuring online ROI and performance requires the concepts of worth, value and adherence to goals rather than simple numbers.
Establishing worth and value can be a haphazard approach; the remainder of this document seeks to create a simple framework to allow the creation of website ROI and performance models before the website is built. Building ROI and performance models before the creation of the website allows focus for all parties (namely the client, the digital consultants and the website designers and developers) to what is important and an agreed structure to monitor performance.
The Framework
Setting the scene3
Background
In creating the model the background to the company and any previous website must be known, and should be documented as part of the model creation in clear English.
The purpose of documenting a background is to establish a starting point for that can be agreed by all parties creating the website that can be used to judge the feasibility of expectations and aims; e.g. the feasibility of a website with no previous presence to attract 100,000 visitors in the first month is distinctly lower than that of an established website already receiving 100,000 visitors.
Aims and Expectations
With a background in place the aims and expectations of the site can be formulated. The aims of the website are generally on-going and can be documented in clear English, since year on year it is unlikely that these will change.
Expectations are derived from the aims in light of the background of the site. Expectations should be performance driven and treated in the business case; later in Areas of Worth we use the four precepts of Information, Conversion, Breadth and Focus to group each return, expectations should be aligned with one of these precepts. Expectations should be brief and bulleted; if expectations are convoluted there is the potential for misunderstanding. Expectations should also be rated in order of importance (most important first).
Website Returns
Website returns are the metrics by which ROI and performance can start to be measured. These are the simple building blocks such as:
- Page views
- Visitors
- Contact forms completed
- Total purchases
They are not yet rated into worth, value, or compared against expectations; they are the points at which fixed numbers are collected. Against each return (tangible or non-tangible), a fixed measure of when that return is achieved has to be specified.
Tangible Website Returns
The easiest returns to measure are tangible website returns. These have a direct measurement against normal website metrics; examples of these would be:
- Sales through the site
- Leads generated through contact forms
- People signing up to the newsletter
- People calling a dedicated website telephone number
Each of these actions can be given a simple definitive value to a company and can normally be mapped against ROI and performance on any existing marketing efforts.
Non-Tangible Website Returns
Non-tangible returns are somewhat harder to derive since these have a layer of analysis over and above direct measurement; examples of these would be:
- Brand Awareness
- Reputation / Impression
- Presence
- Education
Each of these could be a direct benefit of a website; however they are not directly measurable. To derive the return on these simple metrics (visitors, repeat visitors, people browsing certain sections of the site), can be used to calculate when these benefits have been achieved.
Worth
Areas of Worth
All aspects of worth on a website development have to be tied into business case to have any worthwhile meaning. Returns should be placed into the areas of Information, Conversion (measurement of goal achievement), Breadth (measurement of access variables) and Focus, as the website expectations have been previously. Although a website can have returns and expectations in all areas Information and Conversion are the opposite in the worth they return as are Breadth and Focus.
-
Information
Information is passed freely from a website without barriers. -
Measurement of Goal Achievement
Conversion seeks to take anonymous members of the public into leads, recurrent triggered marketing opportunities and sales. -
Measurement of Access Variables
Breadth follows the approach of many things for many people, in online marketing it is sometimes referred to as the long-tail approach. -
Measurement of specific focused messages/terms
Focus invokes a specific message or route tied to speciality.
Worth Map
To create a worth map the following steps should be taken:
- Each area of worth should be rated 1 to 10 in order of importance (1 = Trivial, 10 = Critical), the rating of these should align themselves with grouping within the Aims and Expectations
- Each return should be rated 1 to 10 in order of importance (1 = Trivial, 10 = Critical)
- The area rating should be multiplied by the return rating to establish a measure of worth
- Worth can then be mapped on a graph the X axis would be Information to Conversion. They Y axis would be Breadth to Focus
Placing Value
The value of a website is split into the financial value of website returns and the performance of the website. These should be displayed in a table to allow quick reporting over reporting periods.
Establishing Financial Value
It is easy to over simplify certain areas of fiscal value reporting. In ecommerce sites it is tempting to measure performance on total transaction values ignoring elements such as margin per transaction. It is also for non-tangible returns difficult to place a fiscal value.
For a simple framework fiscal values can only be approximations; however over the lifecycle of the website ROI and Performance framework fiscal values can be amended based on evidence to give better approximations.
Fiscal values can either be fixed, or be calculations based upon simple measurements; e.g.:
| Return | Fiscal Value |
|---|---|
| Total Sales | 20% average margin |
| Sales above £100 | 5% additional margin |
| Brand Awareness | 1% given brand value for each 10,000 visitors over 100,000 |
To avoid counting the same value twice each return and value should be aware of previous returns (e.g. If a visitor is worth 1p and a newsletter subscriber is worth 3p: since a newsletter subscriber is already a visitor the additional fiscal value of a newsletter subscriber is 2p).
Establishing Performance
Whilst value is a useful reporting and measuring tool, perhaps what is more useful is performance. Since performance can only be measured by achievement of the site, it needs to factor the worth of each return. Performance is calculated:
Performance = (Fiscal Value of the Return x Worth ) / Mean Worth for all Returns
For reporting the performance should extend the fiscal value table to allow both measurements to be seen side-by-side. The report should be structured:
| Return | Worth | Fiscal Value | Performance | Mean Worth |
|---|---|---|---|---|
| Total Sales | 64 | 100,000 | 128,000 | 50 |
| Sales above 100 | 76 | 10,000 | 15,200 | 50 |
| Brand Awareness | 35 | 10,000 | 7,000 | 50 |
Conclusions
Reporting and Amending
Whilst building a Website, ROI and Performance models benefit greatly by clarifying the goals and associated importance. The key for the model is regular reporting after site launch to measure the performance and ROI of the site. By following the framework, all of the key indicators and values should be established to allow rapid reporting over given reporting periods (suggested monthly).
As important as monitoring the ROI and performance using the model it is also important to monitor the accuracy of the model itself. Simple amendments to the model can be performed by changing the fiscal values, indeed fiscal values can also be calculated against reporting period trends. To this end the model should not be considered static, and should be amended and grow alongside the website.
Analysing Reports
Each model created using the framework is likely to be different in the same respect as each company’s Aims and Expectations are likely to differ. The framework has to a greater degree normalized outlying areas of the site in accordance to value and worth as defined by the Worth Map and incorporated into performance.
By reporting performance and ROI normalized against expectations a number of trends can occur; some of the more common are below.
Performance Values exceed Fiscal Values
The model is weighted toward increasing the performance values of those areas deemed important. This trend highlights either the success of the site in core areas, or that specific areas of the site have been given to greater importance. The model will normalize instances where all areas of the site are important.
Fiscal Values exceed Performance Values
If Fiscal Values exceed Performance Values this is an indicator that the site is not performing in the chosen areas. It may be that prominence is given to areas that detract from targeted returns, or the returns are too hard to get to. If the bottom line Fiscal Values are within or exceed the expected ROI for the given reporting period it may be that the targeted returns do not reflect accurately the goals of the site.
Performance totals are primarily from low worth Returns
Although unique in each case this could be an indicator that the website is not maximizing the opportunities to move people towards higher worth returns. This could be routes to entry; this could be by targeting groups that have little interest in higher worth returns.
Performance totals are primarily from high worth Returns
Whilst this is an indicator of a successful site, it could also be indicative of low audience levels or too higher worth being assigned to certain goals.
During each reporting period reports should be analysed to ascertain where improvements can be made to the site. The bottom line totals should be analysed against expected fiscal returns (e.g. Factoring 'break even' periods against the total cost of the project).
This blog post was written by Richard Conyard
If you would like to discuss this post why not follow us on twitter?
