How to Plan for Your Ecommerce ROI Part I – Determining your investment in ecommerce
By Vu Online On September 12, 2012 - Ecommerce Website, News
Is an ecommerce website a product to purchase or an investment to make? What should it cost? How can you figure out how much you should invest? This white paper and the forthcoming Part II answer these questions and explain why you need to think less about the price tag and more about what your ecommerce website means to your business.
The ecommerce investment equation
Owning your own home and running an ecommerce website have a lot in common. Both can be an emotional roller-coaster and both can mean getting a lot more friendly with your bank.
Just like a property purchase, what a website ‘costs’ to build isn’t the whole investment you need to make in ecommerce. There are hosting charges, maintenance costs (your time or someone else’s), domain purchase costs (which can be high if your desired domain name is already owned by someone else), security costs, license fees, merchant account fees, payment gateway fees, and a raft of other charges and fees that quickly increase the initial investment.
That’s before you even get into email marketing, PR release fees, pay-per-click ads and other marketing you might want to undertake.
The result is that many new ecommerce businesses actually over-invest in their websites and end up without any budget left over to run the site six to twelve months down the line. Just having a site does not get you customers. You need to market the business and that requires a budget.
Setting your starting point
What you invest in your ecommerce site should not be measured in Pounds Sterling, but in the level of investment you are willing (and able) to make to get the kind of returns you expect.
This might seem a bit like circular logic, but stick with us a moment.
Setting budget expectations is a crucial step in your business planning and marketing planning. Spending too much on the website and content management system (CMS) up-front can rapidly deplete your marketing budget, making growth sluggish or nearly impossible because the funds run out before the returns start coming in.
Under-investing in the right ecommerce set-up can actually mean paying more to get the functionality or design that you really need and want, and it could mean paying even more again to have a developer help you fix issues with the ‘budget’ ecommerce CMS system that suddenly stops taking payments.
Price versus Value
It should be obvious, but ‘low cost’ and ‘great value’ are not the same thing. With ecommerce websites (as with all products and services) you do actually get what you pay for.
There are many low-cost ecommerce options out there that make setting up shop a breeze. Many of the pre-packaged store fronts are adequate and useful for the bricks-and-mortar store with a merchant account, payment system, customer base, inventory and catalogue already in place.
The downsides of free and low-cost options are a lack of customisation (even the design is set to a specific layout locking your logo, name and images to set sizes) and they don’t include support. That means that you’re on your own to get the site up again if it goes down.
For most pure-play ecommerce businesses however, every minute the site is down means lost sales. Unless you’re fully dedicated to the time it takes to run the website yourself, learning all about domains, permissions, FTP, hosting platforms, security issues, mailbox management, spam, application development, backups, and all the other ‘stuff’ of maintaining a website (instead of or at the expense of your business) you will probably find that the value of support that can be offered by an ecommerce design and development agency is far greater than the ‘price’ they quote you. (Not to mention that you can have that slick design you’re thinking of too!)
There is a tremendous value in the security of knowing that someone else is responsible for getting your site going again. Often this will be set as a service-level agreement (SLA) or guarantee of ‘up time’ for your ecommerce site.
How to set your ecommerce budget
Taking the time to get the right set-up in place from the start is what ensures the best return on the investment in the long run.
When Amazon began, it did not feature all of the functionality it does today. They built a platform that worked for them and they invested the profits back into the technology and infrastructure. Because of this, Amazon didn’t turn a profit for years. But just look at where they are now, and notice that reinvestment in growing the business still features in the way Jeff Bezos runs Amazon today.
The lesson for you? When you invest in an ecommerce website, all of the functionality and features you want might not be feasible in this year’s budget. But they might be in year two or three, so plan your investment wisely and start with a solid foundation.
When choosing which route to take, ask yourself these questions:
- What is the value of what I’m asking for?
- What will be my limitations?
A custom design, product database and payment system might mean that you can have whatever feature or function you want. The only limit will be your budget. A basic toolkit site or ‘template’ ecommerce site may cost less initially, but its limit is in what it makes available for you to customise and do with your site. This could mean you won’t be able to determine specific colours and logo sizes. It might also mean you won’t have features such as product searches, comments and ratings, or personalised customer website accounts.
More in the next white paper
In Part II, we’ll look more at what you are actually getting when you buy a website and we’ll honestly set out some price ranges with a sample of what you can expect to receive at that level of investment.
- SEOmoz, Social Annotations in Search: Now Your Social Network = Rankings,http://www.seomoz.org/blog/social-annotations-in-search-now-your-social-network-rankings, Accessed 07.04.2012
- Searchengineland, Bing Ups Ante in Social Search, http://searchengineland.com/bing-ups-ante-in-social-search-re-ranking-serps-with-likes-77269, Accessed 07.04.2012