Cost-benefit Analysis and ROI Calculator

To estimate the incremental cash flow that can reasonably be expected from a web analytics program used over time, consider the two key components that lead to increased ROI:

  1. The direct increase in sales resulting from improved traffic quality and website usability.
  2. The savings resulting from discontinuing non-performing advertising and preventing click fraud.

ROI is defined as the ratio of gains to cost, usually expressed as a percentage:

ROI = (Gains - Costs)/Costs

Consider the following hypothetical example. You can easily insert your numbers in place of ours and see how your potential ROI turns out. First, we need to collect the following data: 

1. Site information:
    A: Monthly sales ($100,000)
    B: Monthly ad budget ($15,000)
  
2. Sales increase resulting from improved...  
    C: Traffic quality  (2%) 
    D: Website usability (2%)
  
3. Savings resulting from...  
    E: Discontinuing non-performing ads (10%)  
    F: Detecting click fraud (10%) 
  
4. Web analytics fees:
    G: Monthly investment ($1,000)

Insert that data into the formula: ROI = (A*(C+D) + B*(E+F) - G)/G

Formula with sample figures inserted: ROI = ($100,000*(0.02 + 0.02) + $15,000*(0.10 + 0.10) - $1,000)/$1,000 = ($2,000 + $1,500 - $1,000)/$1,000 = 600% ROI

This example uses a conservative estimate for the improvements that you can reasonably expect from a consistent web analytics deployment.

You can use the formula above to project your own ROI or feel free to download our handy ROI worksheet in Microsoft Excel.