One question many small business owners struggle with is how much to spend on software. Should you get existing software off the shelf? Open Source or proprietary? Or should you invest in custom development? But how much does that cost and is it worth it?
Many of the smaller companies I’ve worked with over the last year have similar problems. At some point they decided they needed a website and just went with whatever their cousin recommended. This wasn’t a bad choice, because the site has brought them new clients and kept them in touch with existing clients.
In short: the site has made them money.
Programmer’s and lean startup aficionados would say that their minimum viable product has validated their assumptions.
The other side of the coin, is that a site like this usually requires a lot of manual maintenance. So now the business is at a point where they want to invest in the improvement and the expansion of the website.
But what to do?
Lets study a fictional example: Huey Bobbie’s company “Server Certified Studios” has a website containing a few modules:
- A content management system that was created by his nephew as a homework assignment. It works, but for every update to the site, Huey needs to figure out what file to change and if he makes even the smallest error, the entire site goes offline.
- An open source application that manages his mailing list.
Huey’s expenses for the site are:
- A shared hosting account and a domain name. For about $150/year you can get a decent package deal.
- Initial programming and template for the site. Those are sunk costs, so they won’t play into any calculation here.
- Every month Huey needs to add a few products to the site, add a bunch of news items and update one or more page. Writing all of those things takes about 1 hour weekly. But because he has to search through the files and be very careful with the syntax, this takes him another 1 hour weekly. Lets assume Huey, as a business owner, values his time at about $100/hour (which is conservative, he could be doing other stuff to make more money).
Everything combined, the website costs Huey on a yearly basis:
$150 + 50 (working weeks) * $200 = $10150 / year
I think this is a fairly realistic number of the cost of a typical small business website that is maintained regularly.
For the sake of argument, lets say Huey has calculated that the site is generating a revenue that is exactly double of what it cost him: $20300 / year.
Or the site is making a profit of $10150 / year, or a 50% profit margin.
Just to make this more concrete: $20300 means 203 customers buy $100 worth of product over a year. Or about 17 customers find Server Certified Studios through his website. Not at all impossible.
Room for Improvement
That’s not a bad extra profit to add to the bottom line. But lets see how we can do better.
For instance, lets believe in magic and assume there is no additional work required to get a news item that is written on the website. So Huey only need to write 1 hour / week and whatever he has written magically appears on the site.
In that case, the website cost is:
$150 + 50 * $100 = $5150/year
The profit is $15150 or a margin of 75%. That’s huge improvement!
But lets try something more realistic. We automate the website a little and improve it’s administrative interface. Now Huey only needs an hour each month to update the site.
The cost: $150 + 50 * $100 + 12 * $100 = $6350 / year
That’s $13950 profit or a margin of 69%. A nice increase.
Getting There: Investing
If Huey wants to recoup this improvement in a year. The investment may not be over $3800 (this is the additional profit over a year: $13950 – $10150)
Given the size of this website, $3800 can buy a lot. A few example investment opportunities are:
- Find a WordPress theme expert and let them convert the existing site layout to a WordPress theme: Site maintenance will be drastically easier and finding cheap developers afterwards easier (the WordPress dev community is probably one of the most saturated)
- Go on Elance and find a PHP developer that can create a script that automatically converts the input text to the XML format of the site: Not as future proof, but could be even cheaper if you find a good Asian developer.
- Hire a Virtual Assistant to put everything online at about 1/10 the cost of you: Easy to set up, but requires continuous payment.
If Huey would ask me what to do, I would most certainly recommend the WordPress solution. It’s a one time investment that will create a site that is ready for further expansion. And the numbers support it.
Huey will find a WordPress theme company that can create this for $1000. Which will repay itself in 4 months. Furthermore, the WordPress powered site will probably have better SEO than whatever was there previously. Thus delivering even more clients to Server Certified Studios.
If you are a small business owner and feel your website is sucking up way to much of your energy, it’s time to evaluate your options. Write down the numbers and see what kind of time and money you are spending and how much it is making you.
Even small investments can tremendously improve your profit margin and reduce your frustration.