Calculating Web site payoff

Despite last year's dot-com disasters, the Web continues to be a part of virtually every company's marketing strategy. The question isn't whether or not to have an online presence; it's how to tell whether -- and by how much -- the Internet increases market share and fattens the bottom line.

The problem is that most companies have no idea how to accurately measure return on investment when it comes to their Web sites. Counting hits and monitoring visitor behavior have become de rigueur, but neither one answers the thorny question of how much a company earns -- or saves -- by marketing on the Web.

Meanwhile, even in the midst of a down economy, companies continue to invest money in their Web sites. But now top managers are pushing harder than they once did for proof that the sites are more than glitzy money pits, according to Lisa Melsted, an analyst at the Yankee Group in Boston.

The average company budget allocation for a Web site is about US$500,000 annually, according to a survey of 200 companies that The Yankee Group conducted in August 2001. While overall expenditures have likely come down somewhat over the past several months due to cutbacks and layoffs, Web site maintenance is still a large expenditure, Melsted says.

Comparing Web sales with sales generated by other channels is an important ROI metric that can help a company determine how online activities stack up against overall business goals. At $10.7 billion Staples Inc. in Framingham, Mass., the value of a customer is based in part on how many channels he uses to buy products. That means analyzing sales generated over the Web, at retail stores and from the catalog.

"We focus on integrating sales data across all our channels to create metrics that refer to the lifetime value of the customer," says Mike Ragunas, chief technology officer at the office supplies retailer. "We've found that in terms of sales, a three-channel shopper is worth 4.5 times that of a retail-only shopper."

Two Channels Are Better Than One

Similarly, St. Petersburg, Fla.-based HSN LP, a $1.8 billion multichannel retailer best known for its Home Shopping Network, has found that customers who shop both online and from television spend 26 percent more than those who shop through a single channel.

If a company experiences an increase in Web site visitors that doesn't result in increased sales, something is wrong, says Eileen Raphael, manager of Steelcase.com, the online arm of $3.9 billion office furniture maker Steelcase Inc. in Grand Rapids, Mich.

After launching the company's first Web site in 1995, Raphael watched site traffic double every year; but the number of sales leads didn't double.

Steelcase learned from customer feedback that visitors to the site were frustrated by its design and felt that it didn't provide enough information to place orders. "When we decided to relaunch, we were getting 110,000 to 120,000 visitors per month, so there was a tremendous opportunity to build our customer base," Raphael says.

Now, Steelcase looks at both revenue and cost savings to measure the ROI of its relaunched Web site. For example, a salesperson at one of the company's 800 outlets might earn $75,000 per year. If Steelcase.com can provide product information without getting a salesperson involved, it saves an hour of the salesperson's time, or about $36.

"If we can save one hour of time for a dealer salesperson every week, that adds up to millions of dollars per year in people's time," says Raphael.

Countrywide Credit Industries Inc., a $2 billion financial services company based in Calabasas, Calif., is also seeing increased sales online as a result of a Web site overhaul. The company redesigned its site two years ago based on customer feedback and Web site performance.

Countrywide's IT group built software that lets the company track "events," such as how many people fill out loan applications online and how many applications result in loans. To do that, Countrywide had to integrate the Web site with back-end databases and enterprise applications. This process also lets the company more easily measure Web site activity in terms of its overall business objectives, says Larry Gentry, vice president of e-commerce.

For example, Countrywide now knows that its Web sites account for 48 percent of overall loan funding, up from only 5 percent two years ago.

Also, providing services such as electronic statements and online rate calculations via the Web site has yielded cost savings. Previously, Countrywide provided those services at a higher cost via mail and fax. "The immediate ROI is cost reduction. Now that we put those services online, customers get the information sooner and we get the cost savings," says Gentry.

The bottom line is that instead of poring over reams of data, IT's time is better spent developing ROI measures that can show how well the company's Web channel is performing compared with other sales channels, says Bill Gassman, an analyst at Gartner.

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