ROI is the Real Measure of Success - Return

Since we know what ROI is and the various types of investment we can and need to make in a web project let’s take a look at the fun side of the equation and examine the kinds of returns we can hope to see.

Direct Monetary Return

photo credit: Tanya DropbearIf you’re putting cash in, chances are you’re hoping to get cash out. The direct monetary return you can see from a website is just that - cash that the site earns directly. If your site is an e-commerce site then the direct monetary return is the profit you make on selling items. If you have a content site then the direct income is from whatever monetization strategy you use - selling advertising, promoting an affiliate offer, fees you charge for products or services or in some cases a tip-jar for you blog.

Direct monetary returns from your site are pretty straightforward but in some cases the web adds one extra little twist and that’s passively generated and residual income. Passive income is simply the effect that web content can stick around for a long time and continue to earn you money. If you have a blog and write an article that promotes an affiliate offer, someone may find it in the search engines a year from now, respond to the offer and generate income for you. You did nothing in particular to drive that specific action but it yields income for you anyway. Residual income is also usually associated with affiliate offers, but in particular those offers that give you a continuing payment as long as the visitor you send them remains a customer or a payment based on what that customer spends over a continuing term. A common example might be a web hosting affiliate offer that will pay you for every month that the users you send remain a customer. These are still direct monetary returns but the fact that they may occur over a longer time period adds some twists to how we use ROI later.

Indirect Monetary Return

Indirect monetary return happens when you don’t actually monetize your site directly. In some cases you can think of this as your site being an affiliate program for your offline business. For example if you own a garden shop in a town you might run a blog about gardening. If that blog drives traffic to your offline shop then those sales are an indirect form of return. In this case since so few of your readers are potential customers it would be silly to use this as your only form of monetization but it might serve as a secondary source of income.

photo credit: jurvetsonIn other cases this indirect monetization can be the primary income derived from a site. Maybe a national brand of canned tomatoes runs a site with cooking tips and recipes. They might do no other monetization of the site than mentioning their brands when the recipe calls for a product they make. On a more individual level someone who works as a consultant can use a site to help establish them as an authority in their field. If your blog gives you the reputation as a top expert in SEO/SEM then you can be sure that you can command huge fees in consulting deals. Noted experts might also have opportunities to write books, publish articles and speak at conferences that they wouldn’t have unless their site established their authority.

Non-Monetary Benefits

It’s not always about the money. Sometimes the biggest reward you get from an online project might be the recognition it brings you or knowledge that you’ve helped someone else. Some people blog just because they want to have others read their opinions. Some people start a fan site because they just really love that actor/band/movie and want to encourage others to share that love. Since the costs of a website can be very low it can be worth it for some people to run a site at a loss as a hobby. If you’re looking to run a website as a business however these non-monetary returns can still be a powerful secondary reason to do what you do. It’s a lot of fun to sell someone you run a site and find out that they’re familiar with it. It can also be awfully encouraging to see a positive review in a magazine or online even if it doesn’t drive much traffic. These non-monetary benefits are another good reason to do something that you’ll be proud of.

Life and Lifestyle Benefits

While not a direct result of any one particular investment you make, the successful online entrepreneur can experience lifestyle benefits that are not available through a regular job or even a regular small business. Besides the pride in working for yourself and not having a boss, online endeavors will typically allow the entrepreneur to work when they want and where they want. This makes an online project a great option for stay at home mothers (and fathers) or people who want to live in out of the way locations.

Finishing the Equation

We introduced ROI as return/investment and now we have both the investment and return parts of the formula. But as you can see both investment and return can take non-monetary forms. It’s not always easy to boil ROI on the web down to a nice simple ratio. An exercise that can be helpful however is to assign monetary values to these non-monetary costs and benefits and use those to derive a final ROI number. I’ll talk more in the 3rd and final part of this series about why we want to estimate those ratios and how we can use the concept of ROI to guide our decisions and judge our past performance.