Why you should build a website this year instead of the next

It’s not uncommon for us to be asked by a client looking to build a new website whether they should start this year or leave it till next year. In fact, we recently came across this very question on a project we were working on.

Not having a good answer at my fingertips, I set about thinking of a way to answer this question on the train ride home. What resulted was a calculator that can help you weigh up the value of timing in a new website project.

Before we get to the calculator, however, we need to start with some accounting & economics.

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The traditional way to value a website

The return on investment (ROI) for a website – or any asset – purchased by a business is measured by its net contribution to profit over the lifetime of the asset.

To ascertain the value of a new website, we would need to make assumptions and estimate what the profit might be without the website, and then again with a new website.

The (scary-looking) formula for calculating the new profit would look something like this:

Simply put, if a new website contributes a combined addition to revenue greater than the investment required, it will have a positive return (or ROI) for your business.

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So how does a website add to my bottom line?

There are a variety of ways websites can provide return for your business. The core, quantifiable ones are:

• Increasing the likelihood of converting a visitor into a customer
• Increasing customer retention, and, in turn, increasing customer lifetime value
• Increasing average customer spend through active encouragement towards higher priced products

We also see value created through decreased costs, for instance:

• Decreasing costs for a business’ call centre due to a more informative website
• Reducing subscription costs if the new website replaces tools that were used for things like building landing pages etc.
• Non-monetary savings through increased workflow efficiencies, ensuring wage expenses are more effectively spent and have a higher correlation with increased productivity.

On top of all this, a website is typically kept on a company’s balance sheet for three years, with the costs spread over the same period. Therefore when calculating the changes in revenue/cost, decision-makers should be looking at a three-year term, or, calculate the return for one year and multiplying it by 3 for the ‘cheats’ way.

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Okay, why this year?

The simple answer is that you should build when:

Sure, it’s only a slight change from the traditional way of thinking, but we’ve now moved from a one-year snapshot view of transactions to looking at the lifetime value generated within one year.

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Enough from us!

Head on over to the calculator here and calculate how much value you could create this year with a new website. Don’t worry; this isn’t a lead generation exercise so we won’t ask for any personal details – just plug in a few of your business’s relevant figures and it’ll do all the math for you! Easy.

Alternatively, I’ve also created a spreadsheet which allows you to account for your WACC (weighted average cost of capital) which you can download here.

If you want more of a detailed explanation on the thinking behind this post, head over to the original on LinkedIn here.