Is a Website Right for Your Small Business?
When determining whether or not a website is right for your small business
, there are a number of things to consider. Not all small businesses will benefit from a website, and the business decision to spend the money to develop one should be carefully considered.First on the list should be to develop a plan for the website. What do you hope to accomplish? Will you be providing information? Developing an on-line market? Establishing a communication forum with your customer base? There are many uses for a website, but you must know exactly how you expect to use it to determine whether or not a website is a good business investment. Yes, of course you can develop additional uses over time, but you must begin with a plan.
Secondly, a website is a business investment, and among the metrics used to make such decisions should be the question of Return On Investment, or ROI. In it's simplest form, ROI is simply the percent of gain from an investment as a result of that investment.
The idea is to determine whether or not you can afford a website, and whether or not that website would pay for itself, and increase revenues. While this sounds like a relatively simple idea, it can get complex. For instance, should you decide to operate a static informational website, it can be difficult to determine how or if - that website is impacting your business. This is made easier perhaps by using the website to offer coupons or special deals offered only on the website, and then tracking the use of these incentives by customers.
An e-commerce website is a little easier to track since it is a source of direct sales, though one must be cognizant of any increased cost of goods sold such a site might incur, including additional shipping costs, additional warehousing or increased labor cost.
The entire exercise is made even more complex by the fact that there is no "right way" to calculate ROI. The basic formula is: ((gain from investment minus cost of investment) divided by cost of investment). This formula will produce a percentage, and that percentage is the return on the initial investment. Keep in mind, however, that this number may vary depending on what you elect to use in the various inputs, and on what period of time the calculation is predicated.
For instance, one way to calculate this number might be as follows:
Let's say your business averages $100.00 per day of gross revenue. Now let's say that your Cost Of Goods Sold (COGS) is 52%. Based on these numbers, your net sales before operating expenses and taxes is $17,520.00 per year. This number is also known as your Net Operating Income, or NOI. Now let's say that you want to operate a small e-commerce website. We will suppose that the website will increase your sales revenue by 10% the first year. However, we think that this portion of the revenue will be subject to an additional 10 points of COGS due to additional shipping and various other costs. The NOI on this number is $1,387.00. Let's assume that the development of the website, and the first year of the website's operating expense will be an investment of $800.00. By applying the formula above, we can see that in this case, with these numbers, the ROI is 73.4%. This number represents the return on the initial $800.00 investment. That is to say, you got back your original $800.00 and an additional 73.4 percent of the initial investment in revenue gain.
The same formula, using only the website gross sales as the input yields a 356% ROI. It will be up to you (and perhaps your bookkeeper) to determine what numbers go into the formula.
The last thing to decide before you jump onto the web is whether you have the time (and/or money) to operate a website. You can not simply publish you site and forget it. Someone must update the content, monitor external links, and perform various administrative tasks. You can either take on this task yourself, or hire someone to do it. Often the firm that does your website design and publishing will offer these services. Either way, you must be sure that you have the necessary resources for this part of the project.
Most businesses will profit from a well planned, well designed and well developed website. Certainly you should consider what your competition is doing before making any decisions, and, as with any project outside your core business, you should consult a professional to help create your web presence. See you out on the web!
Is a Website Right for Your Small Business?
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