So how much is improving conversion rate worth? Calculating the “return on web analytics”

Return on Web Analytics

Web analytics are a major investment for any online website both in terms of tools and personnel.  However, web analytics teams and tools face the challenge of actually showing their contribution to the top line in order to compete for budget.  More specifically, the challenge is to take all of the advice and suggestions for improvement and show how much incremental revenue they contributed to the company.

Can web analytics experts just sit idle when organizations are scrutinizing every investment and CEOs are looking for higher ROI?  How can web analytics increase accountability and turn its perception from a cost center to a revenue generating machine?  Avinash Kaushik and Jesse Nichols suggest that it is time to start calculating the ROI, or as Nichols calls it, “Return on Analytics” (ROA).

It seems that everyone is jumping on the ROI bandwagon these days.  Marketing is measured by Return on Ad Spend and new product features are measured on incremental sales.  Internal tools are measured on the work (and cost) that they save to the organization.

According to Kaushik and Nichols, the challenge in Web Analytics is that it improves the ROI and performance of other teams which makes it hard to calculate its contribution directly.  For example, if an analyst improved conversion rate by 50%, marketing can then say that ROI on ad spend is 50% higher and therefore more budget should be allocated to Marketing.

Kaushik and Nichols have a different suggestion.  Their solution is to sum up the improvement over a period of time and divide it by the total investment in analytics.

For example, let’s imagine company is investing $30k in analytics and gets a return of $120k in monthly sales—or overall a 400% ROI.  Now, they hire a web analytics expert that is able to take the same investment in marketing increase conversion rate and user experience and turn it in to $180k in revenue.

The challenge is that right now, the Marketing team actually claim credit for the improvement, while it is hard for the analytics team to be recognized for it.  However, by calculating the ROA, the web analytics team can show their true worth.

Let’s assume that the company invests $5k per months in web analytics tools and services. So a monthly improvement of $60k in revenue and $5k in cost delivers an ROI of 1,200%.  You don’t need to be a finance professor to know that is a great return.

To get the place they deserve in the organization's totem pole, the analytics team need to be able to show indecisively the contribution that they are making to the organization’s top line.  If they would like to justify the investment in more sophisticated tools they should compete with the other departments on ROI or ROA.

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