How to Determine the Typical Rate of Return on a Website

Calculating the exact website investing returns can be very complex. The first step to finding your website’s rate of return is to know what type of website you run; e-commerce or a non-ecommerce site.

The returns on the former are easier to calculate as your sales figures and expenses are clearly identifiable. To get to the final figure, all you need is:

• Find the net difference between your sales and expenses.
• Divide the result with your expenses

However, calculating website investing returns of non-ecommerce sites can be tricky. 

Assuming that you’re here for the same, here’s what to consider while determining your site’s rate of return.

Read on.

1. Identify Your Objectives

The rate of return depends heavily on key aspects, such as traffic, target visitors, qualified leads, and loyal customers. Each aspect is interlinked with your ultimate goal, i.e., optimized returns.   

The clarity of objective helps your website fulfill your needs. Say, you have a passive income blog, and its purpose is to garner more visitors and engagement, then you have to focus on driving traffic to your website. 

Instead of directly selling your product or services, you’re more interested in maintaining a strong presence on search engines. For eCommerce websites, more sales is the primary objective.

Determine where you thrive and where the website needs additional value or has disadvantages. There is no one size fits all approach to investing in websites. There are plenty of strategies that work. 

Here are some that are my favorite strategies for website investing:

• Acquiring for yield: Acquiring a website that produces strong cash flow and has low overhead. The site requires limited time and maintenance. You simply make a guess on your rate of return if you were to do nothing with the site and let it produce its cash flow. This is the most common strategy if you are looking for a sound passive income idea.
  
  
• Distressed investing: In this instance, you are looking for opportunities where a site has struggled or gone completely dormant. The technology could be sound but the website was improperly managed. 
  
  
• Buy, Fix and Flip: A buy, fix and flip situation is where you provide some sort of value-add that the site does not already have. That may be a source of attracting new customers or leads or it may be a completely new revenue source. Either way you position the site for growth right away with line of sight for a potential sale down the road. 

Each of these strategies would have completely different risk profiles. With varying risk profiles, varying opportunities for financial return. 

Website Investing Returns and Traffic

It’s obvious, website investing returns would be higher for high-ranking sites as they’re getting higher traffic and unique visitors every day. 

This, in return, paves the way for more revenue through digital ads. 

Websites like YouTube and Wikipedia, and Twitter have the highest monthly traffic, which is why they’re ideal for brand marketing. Also, high-scoring traffic sites can penetrate any market, whether it’s heavily populated or unexplored. 

They can earn in excess of $5-$10 for every 1,000 views on AdSense, which may seem cheap. 

But when you tap into unexplored markets, you can extract immediate value with revenues topping $50+ per 1,000 page views.

2. Check Your Website’s Ability to Convert

Website investing returns rely on its purpose. It also considers these:

• Quality of CTA and Sales Funnel
• Conversion rate
• Closing rate

Call to Action and Sales Funnel

You’ll agree to it; every website has a purpose, but most of them don’t show off. Your site is poor if it doesn’t feature Call to Action (CTA). This can be anything from subscription/signup forms to phone calls, email list sign-ups, or product sales. 

These CTAs, when responded in the desired manner, are considered to pass through your sales funnel. This is an important factor to consider while determining a website investing rate of return .

Conversion Rate

Conversion rate is an easier way to quantify your site’s performance; how good it is in transforming leads into customers. On average, only two to five percent of visitors actually turn into leads, which is roughly about 40 leads per 1000 monthly views. 

That’s also crucial in assessing your site’s rate of return.

Closing Rate

You may succeed in converting visitors into leads, but some tend to move away before you guide them down to the last phase. It totally depends on your sales skills to optimize closing deals. Sites with prompt responses and alternatives often get more customers than others. 

The ability to close the deals quickly adds up to the rate of return. Meaning, it’ll be more valuable for your buyers. 

3. Determine the Cost of Your Website

Firstly, calculate the total cost of generating the website in a way that you can determine the investing returns. Secondly, estimate the average lifespan of your web design. This, too, will differ based on the nature of your site.

The average life of design is two years and seven months. 

So if, for example, your design costs $10,000 and it’s estimated lifespan is two and a half years, the yearly cost would be $4000.

4. Calculate Client Value

This part deals with your close rate, and it’s a little bit technical, but let’s carry on.

• Go back to the closed ratio (closing rate or your website) and see how many clients you have generated in the year. 
  
  
• Now extract the yearly sales value from your financials and divide it by the number of clients. 
  
  
• Suppose you got ten clients in the year, and your sales reached $6000. The value per client will be $600. 
  
  
• Now, consider your website’s lifetime, which is around 2.5 years (as explained above). Multiply it with the value per client. 
  
  
• This means the lifetime value of one client will be $1,500 (600*2.5).

5. Determine the Website Investing Returns

Finally, if each client’s lifetime value is $1,500, the value of the entire lot of 10 clients will be $15,000 (1500*10). 

This means you can pay the website cost in eight months. (10,000/15,000*12). The yearly ROI is $15,000, and the monthly value is $1,250.

Conclusion

In this post, we did our best to explain the process as easy as we could. However, do keep in mind the exact formula will differ according to the nature of your website. 

An accurate evaluation will help generate more precise figures and determine the exact investing returns for your website.