When only hard-nosed numbers will do

Imploding dotcoms and a colder economic climate mean organisations have become increasingly hard-nosed about website investments. Projects must be able to quantify benefits, preferably in direct bottom line terms – and that means looking beyond the few

At the start of this year the importance now attached to the internet in business-to-business marketing was set out in a survey by BtoB and Patrick Marketing Group. In terms of increased funding, internet spending ranked second at 52%, behind direct marketing but ahead of public relations. Also, internet and PR budgets were the least likely to be targeted for reduction (11-12%). The b-to-b marketers polled also said direct marketing and the internet were the top methods for generating leads.
Other factors are also working to compel organisations to increase investment in their online capabilities:

  • Use of the web both to find information and buy goods and services has increased rapidly over the past two years, increasing the competitive pressure on organisations to develop their sites.
  • The accelerating availability world-wide of high-speed broadband internet connections is creating more opportunities to exploit the medium while encouraging internet users to spend more time online.
  • Increased political and regulatory pressure. For example, in the UK local government authorities must make their services accessible online by 2005; companies may soon be obliged to make their annual accounts available online within four months of their official announcement.
  • As internet users’ satisfaction with web-based or delivered customer service increases, organisations are looking to use their sites to open up dialogue with their customers and deliver more service-related information. Web-based CRM also has the potential to deliver significant cost savings.
  • A focus on cost savings is the overriding objective of IT executives in the US and Europe, according to a survey by Getronics and International Data Group that focused on priorities from mid-2002 to end 2003. Across multiple industries, 67% of the respondents report “decrease costs” as a top-three business priority for the period.
  • A report in January 2003 from advertising firm DoubleClick confirmed that on-line advertising is proving an effective communications tool, thanks in part to the use of customised messages to attract different groups.
    h3. The need for effective measures of ROI
    For companies embarking or expanding on an e-commerce strategy, the need to adequately prepare a strong business case is now clearly recognised, according to research by NTC/ Cap Gemini Ernst & Young/ Chartered Institute of Purchasing and Supply. But many of the organisations surveyed for the research cited a change in resourcing priority as a key factor in implementations getting behind schedule, demonstrating how crucial senior executive sponsorship for e-commerce strategies is.
    That is hardly surprising after the me-too rush of the early internet years. Imploding dotcoms and a colder economic climate mean organisations have become more hard-nosed about website investments. Projects must be able to quantify benefits, preferably in direct bottom line terms.
    Headings under which organisations look to quantify benefits include cost savings, revenue generation, customer service, customer retention, better business intelligence, market share and strategic positioning. For those looking to benchmark their performance the choice of what to measure, how to measure and when to apply the measure is central to building a representative picture of comparative performance.
    Despite this, few hard and fast measures of return on investment have emerged. Standard indicators of site usage, such as page views and unique visitors, are part of any toolkit but address only site performance and not site effectiveness. Just as an annual MoT service is unable to tell you if your perfectly running Reliant Robin is the best conveyance for that touring holiday in France, so usage data of itself presents a limited picture on which to base an investment decision.
    To obtain a deeper perspective on its website’s effectiveness an organisation needs to develop measures of success that are sufficiently flexible to produce a customised assessment within the context of its strategic or operational goals.
    h3. Guidelines for developing customised measures
    There are, however, some broad guidelines to help organisations in developing their own measures. They reinforce the focus on building measures of effectiveness from an organisation’s established objectives.
  • In broad terms, the return on investment (ROI) comes both from the quicker achievement of an effective site (with less reworking), and from the increased effectiveness of the site itself in meeting critical goals such as customer satisfaction or higher transaction volumes.
  • ROI can be directly projected and monitored in some areas: cost saving (such as substituting pdf downloads for hard copy documents) or lead generation, for example, where hard data should be available. Revenue generation fits less comfortably in this category to the extent that estimates play a bigger part. In these instances numbers can be formulated in line with organisational practice.
  • A second category of measures may require some translation into recognisable, usually monetary, form. For example, increased customer loyalty can be equated to a reduction in customer acquisition costs (customers cost much less to keep than to replace). Or greater use of online self-service can be related to time saved handling phone calls or e-mails, which in turn can be costed conventionally.
  • Harder to isolate are the returns on ‘soft’ objectives such as brand-building, innovation or the contribution of the internet channel in multi-channel operations (where revenues and costs are spread across the organisation). Like research and development they are not prone to direct cause-and-effect measurement. Accepted organisational treatment of these issues may provide the template for a website-related measure.

First published 07 May, 2003
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