One common mistake people make is to gauge the return on investment based on turnover. So if your website cost you £10,000 but generated £20,000 in business you may think this has given you a return of 100% of your initial investment.
One of the more common calculations I see people use is calculating ROI based on turnover. If your website cost £10,000 and made £20,000 that would give you a 100% ROI.
Instead the calculation would be more correct if you also took into account the cost of sales.
The Office of National Statistics say that the average rate of return for a service business is 15.6%. For every £100 of income they make £15.60 profit.
Let's say that a service company made £80,000 from their site in year one. That means that, accounting for the 15.6% rate of return they made they made a profit of £12,480 from the site.
My calculation below takes into account the profit made and the cost of the site and returns a ROI %.
( (profit - cost of site) / cost of site ) * 100 = ROI
Now, for this example company the website itself cost £5,000 to make. So the ROI calculation looks like this...
((12480 - 5000)/5000) * 100<br>(7480 / 5000) * 100 <br>1.496 * 100<br><strong>149.6%</strong>
So in year one the website produced a ROI of 149.6%.
It's easy to do this maths after the website has gone live, you have real figures to work with. But I think it's also important that you consider this idea when commissioning a new website.
Your web agency will be able provide realistic projections about ROI if it is important to you. At Rye we won't take on work if we're not confident that we can provide a good ROI.