A Profitero study showed Target’s online prices were 25% more expensive than Wal-Mart’s, which were just slightly more expensive than prices on Amazon.
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There is indeed no guarantee on return on investment for a web site redesign. However, experience can provide a guide to how much it makes sense to spend and where to spend it. Tim Peterson is vice president of marketing at NutraOrigin, a boutique online retailer of dietary supplements, and he previously worked at both cash-strapped e-commerce startups and at another supplement retailer with multiple brands and annual sales in the billions.
Peterson believes that first-year costs for a web design, implementation and e-commerce platform should be set at about 10% to 15% of projected first-year revenue—which means a budget of $1 million to $1.5 million for a retailer that can generate $10 million in online sales in the first year after the new site goes live.
“It has to be high early on,” he says. “I’ve been with other businesses that came and went, and part of the reason was that there wasn’t necessarily smart investment, smart testing and good technology. If you have those things in place early, the expense of your first year will easily be recouped in years two, three, four and five,” he says. The cost of ongoing maintenance for a redesigned site should decrease substantially in subsequent years, he says.
In the case of NutraOrigin, which projects sales of under $5 million for the first year following the site overhaul, the project wasn’t big enough to interest the largest e-commerce design and platform vendors. Other companies that bid in the range of $175,000 to $250,000 didn’t offer some of the functionality the retailer wanted most, such as a promotions engine.
Peterson considered doing the redesign in-house. But the company needed the site to generate revenue quickly after being dormant for several months while the company figured out a new strategy, so he wasn’t willing to trade delays for lower cost. “We could have hired internally and had a team of developers working on it,” he says. “But even if it wasn’t more expensive, it would have been much more time-consuming.”
The Express package from Tellus won the redesign project with flexible pricing that allowed NutraOrigin to keep its cash outlay close to $100,000. An ROI calculator tool developed by Tellus identified which options would make the biggest and most rapid contributions to revenue. Peterson and his team already knew some of the elements they needed—sophisticated site search functionality, for example—and the tool helped them weed out other options. For example, they decided to bypass, at least in the initial round, multi-tiered navigation tabs across the top of the home page.
Peterson says that since launching in December 2009, the site is averaging a conversion rate of 1.5%—higher in some weeks. He says revenue, return visits and visits from consumers who come directly to the site by typing in the retailer’s URL are all up. “We’d love to make more money, but we’ve got to make sure first we are doing this right,” he adds.
Thus, there are a variety of strategies for redesigning on a budget. But retailers must start with a plan, and look for the quick wins, experts say.
“When you look at your wish list for a redesign, break it into phases. Take the smallest set of what will give you the most return on investment and make that your first phase,” Tellus’ Emery says. “Launch that to build more revenue and use your post-launch data to validate what you’ve done. As you keep rolling out phases, that will keep the cost down because you’re not associating a lot of budget with things that are simply nice to have.”