Dealing in web analytics you are often asked about how to convince a client of the particular value of some web strategy or tactic. The strategy and tactics that people want valued are things such as a new website redesign, content marketing, social media marketing, SEO, etc. Trying to convince a financially minded client of the values of these items can be a frustrating experience. Questions can come up like, how am I supposed to make money with what you are charging me? What’s the ROI? How long till it is profitable? What’s my return? Clients often see these strategies as expenses and if they don’t see an immediate relationship to a bottom line then the project is a no go. If the client sees the project as an expense, you’re doing it wrong.
Here’s the deal, finance people, “business types”, look at expenditures in two different ways.
The two different expenditures are:
CapEx & OpEx
CapEx, or a capital expenditure, is an expense that creates a future benefit. CapEx usually involves items such as the purchase of buildings or equipment. These items also have a useful life beyond the tax year. CapEx is evaluated by the finance guy through tools such as NPV or IRR, which lets you evaluate the rate of return you get from a project over time. The finance guy is fully expecting that in the beginning years the investment might be a losing proposition, and might not make money for a few years, but they still expect a big payoff. OpEx on the other hand is an operational expense. These are items that you spend money that don’t have long term value. This includes things like sales, paperclips, cost of goods sold, etc. While some of these items might make you money, they have no future value and cannot be resold. The projects are generally evaluated by the immediate return they make (a sales commission) or as a necessary cost of doing business (paperclips). When looking at the difference between CapEx and OpEx, it is important to remember that you can’t resell a sales commission that you paid or try and resell a media buy you made last month, because the money is already gone.
What are you actually selling?
The question is when you are selling internet marketing services what are you selling? Are you selling an asset (CapEx) or an expenditure (OpEx)? Different marketing strategies make up the opposite sides of this question. A new website is an asset, while a PPC campaign is an expense. Both, will hopefully make you money, but once you stop the PPC campaign you stop making money and you can’t sell your PPC campaign. The website on the other hand will continue to make you money for years to come.
So what things can you or your clients spend money on for your business online that is an asset and what is an expense?
Let’s briefly talk about each one of the above and see why it is (or why it should be) either an asset or an expense to a finance manager at yours or your client’s company.
Website: A website is an incredible asset in today’s world. Your website is the equivalent to purchasing a building in this information age. If you have a good domain and website, it only will grow in value. As you market it the value grows even more as it builds search engine prominence. The engineering on a site can be the basis of your business for years to come. If any business in this day and age treats a website as just some expense, they are mistaken and will suffer as software eats the world. Most businesses are starting to come around to seeing their website this way, but many are still looking at it as just another media buy.
Blogging: A good blog on a site helps bring in links to your site and creates a following. Gaining links is like building more roads to your business, and we all know the prices of real estate with the best locations and the best access are higher than those out in the boondocks. The best part is blogging also builds authority. Sites will gain traffic from strong blogging efforts for years to come, and it will open doors for you that you couldn’t have entered otherwise through your thought leadership. Blogging is a true asset purchase. It doesn’t payoff in the beginning, but over time it raises your property value.
Email Marketing: People have been paying for customer lists for more than a hundred years. Everyone wants access to someone else’s customers and the better customer list you have the more money you can earn from your subscribers by cultivating the relationship. Email in the beginning might not be hugely lucrative, but as you curate the conversation each email can turn into a gold mine.
Video Marketing: Much like blogging, this content builds links, shows up in search engines, establishes credibility, and has a long term payoff. A partner of mine recently launched a video for a client that had huge success in the beginning. But, the full value of that video won’t truly be realized for a few years as it will keep coming up in searches. While there might have been a big initial rush of visitors, the real value will be a year from now when visitors who saw it before will come back because they want to buy the product in the video.
Mobile Apps: Mobile apps are just like your website, they provide value over your long term. This again is one area business are starting to see the long term potential. Hardly anyone is looking at their app as something they burn through. They build them for the long term connection to the customer or the long term sales potential.
SEO: Finally, how could you forget about SEO? How many times have you told your clients not to expect results over night? You tell your client this, because you need them to see SEO as an asset. Even if you have your the client pay a monthly fee for your services which might make it seem like an expense, assets in the physical world have monthly mortgages. You and your client or business know that if you get in now and spend time making their business showing top results in Google that the value they get from the site will grow like the value of a home in a hot real estate market.
PPC, Banner, & Facebook Display: I’ll keep this quick by combining these three categories from the chart. All paid media is an expense. Always has been and always will be. That doesn’t mean though that it isn’t a good business move. But, it just can’t be considered an asset. You might be saying, but what about the branding value? There is something to say for that, but I would say that has more to do with the creation of the content then it does the purchase of the media.
Social Media Marketing: I hesitate to put this here, but unless you are creating new content to be shared on social media you are working as an expense, because if you aren’t giving your users content then you are using social media as a customer service channel and a PR channel. While these efforts can build the brand, they are more closely related to the cost of doing business.
Turing Insight Into Sales
So how do you take the understanding of CapEx based marketing strategies and use it to convince your client or boss? I will only focus on the CapEx items, but you show it in the numbers. Work hard to use the tools available to you to present an IRR to your client. If you have baseline traffic numbers, conversion numbers, and margins you can build a model that will show the long time value. You can show your finance minded clients that this strategy provides a return that they wouldn’t get otherwise. Build your case. Research. And you will be able to show your clients or business the true value your strategies will provide them.