Companies with projects that deal with the internet in someway always surprise me.
Say a company like Ford was evaluating the purchase of a major piece of machinery that was expected to increase plant efficiencies. These efficiencies resulted in the plant being able to produce x more number of cars per day.
There’s no way executives at Ford would approve the purchase without their finance department performing some analysis.
Specifically, at a bare minimum I’m sure executives would want to know the project’s net present value (NPV), payback period (PP) and return on investment (ROI).
None of the above calculations are difficult (in fact, a few seconds in Excel produces the results!), the work all lays in the underlying assumptions that feed the simple formulas.
For most web firms however ROI is often the only metric ever discussed (and often only at a very high level). It isn’t that NPV or PP is impossible to calculate for web-based projects, but the analysis can be slightly more difficult. Often the difficulty is only rooted in the fact that many people don’t understand the relationships between revenues and costs behind online businesses.
I’ve taken a stab at writing a business case that demonstrates how to use web analytics to evaluate a project’s net present value. Please check out the following two files and let me know what you think!
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| Download the business case and the background! | Download the NPV analysis and the answer! |