How Much To Spend On Your Website
I believe Warren Buffet once said: “Don’t ask the barber if you need a haircut” so I’ll start off this post by disclosing we are a company who makes a living off people and companies spending money on web-related services!!
One common sales barrier we are faced with when dealing with small to medium sized businesses when discussing a website renovation or creation or any other web-related services is the cost involved in doing these. Since the web developing and designing industry is an unregulated service industry, developers and designers are free to charge whatever they please. Just like lawyers or accountants can choose their service fees. This isn’t a blog post about how much a website should cost or what is a fair price to having these services delivered. That’s a topic that deserves its own blog post!
It is important, however, for a business to have a clear understanding of what their website can do for their business and the importance of this asset to the company’s bottom line. For the sake of this blog post, I’ll divide businesses into 2 categories: web-based businesses and brick and mortar businesses.
These are the businesses that are strictly online with no “brick and mortar” stores and that operate out of a home office or “virtual” office.
For a web-based business, it’s important to understand the value of your website. Regardless of whether you sell physical products like shoes, books or coffee tables or if you sell services like, investment advice, dating services or music downloads. For this type of business, your website is your ONLY avenue for income and the finances should be aligned to accommodate this crucial fact.
When I’m asked “how much is this going to cost me” I usually turn the tables and ask the client that question. After highlighting the importance of their website, I am quick to say that a web-based business should spend 50%, yes HALF of the business’ income on their website. Obviously this amount varies from business to business but spending half of your income on your website is a fair rule of thumb to go by. For service-based businesses (those without inventory), this number should be closer to 75%. The next question I usually get is “Ok… but my business made $50,000 in income last year, you’re telling me I should spend $25,000 on my website?” And to that I say, absolutely! It might sound like a lot of money to spend on a website but have a look at a typical annual budget for a successfully run web-based business:
|Domain Registration (assume multiple domains)||$50|
|Offline expenses (good computer, internet service, software)||$3000|
|Social Media Management (by a professional)||$5000|
|Online Advertisement (Adwords, Yahoo/Bing Ads)||$5000|
|Traditional Marketing (magazine ads, trade shows, flyers)||$5000|
|Print-Related Metarials (packaging, business cards, hangtags)||$5000|
Some the costs above like the social media management and online advertisement are scalable, meaning, these should increase or decrease as your income increases or decreases. It’s not strange to see some companies have a $1000/day budget for online advertising so as long as the margin is there, these expenses should be adjusted.
Also, some expenses like the initial design or creation of you website wouldn’t be an annual expense but a percentage of that should be reinvested into modifying or updating a website to keep up with design trends, usability and content growth.
Brick and Mortar Businesses:
These are the traditional businesses that have an actual store where customers can walk into and buy products or services. They might also have a website either for marketing purposes or for online shopping. Obviously the formula is a little different for this kind of business since there are added costs like rent/lease, utilities and employee salaries.
Traditional practices say a business should spend around 10% of their income on marketing and website costs are usually bundled under this line item. Most of these guidelines were proved, tested and written about prior to the internet becoming such a major economic platform. Now that customers do their research online, read reviews, gather referrals through social media and shop online, a greater emphasis should be put on this budget. Say in the range of 20% to 30%. It’s not uncommon for some business to generate half of their sales online so committing a low percentage to your online business really means you are “capping” your potential sales.
The bottom line is that most businesses need to shift their mentality as to what is an appropriate budget for their website. Instead of using an actual value for this cost, based on what a friend, colleague or business partner spent on their website, it’s important to look at your own company’s numbers and spend accordingly.
Of course new businesses or businesses in a niche market or low profit margin industry might have a hard time coming up with funds to commit to their websites and that’s part of the beauty of our industry. Depending on where you are in the life of your business, there will always be a web design or developing company to suit a company’s budget. You can contact your brother’s nephew’s friend who knows how to design websites and build one for $100 or you can approach a Manhattan-based agency and spend $500,000 (and get a very good latte while waiting to speak to someone!). Both will accomplish the same thing but, of course, with varying degrees of success.