Could you Expect to Spend that on a Real-World Venture?

Could you Expect to Spend that on a Real-World Venture?

SHARE

For various reasons, many people still have totally the wrong idea about what constitutes appropriate costing for an online presence.

One hears stories of websites costing R20 million, and you have to wonder – what on earth were they thinking? On the other end of the scale, there is the perception of websites as cheap commodities.

This is having a skewing effect in the market.

Knowing what you want

How much, then, should a website or mobile app or social page cost? The answer to that is, invariably, the counter-question: How long is a piece of string?

Only by knowing what you want and appreciating the underlying complexity of it can you come to a good idea of what you should spend.

And to truly know what you want begins with a simple question: what would the real-world equivalent be of what you’re trying to achieve?

Horses for courses

You may want something as simple as a brochure site intended to drive traffic to your real-world store. An equivalent investment would be the cost of designing, laying out and printing brochures. Unfortunately, it doesn’t end there. As with print brochures, you have to consider the risk – reputational or operational – of unavailability, and hence the cost of service level agreements. In addition, there are marketing costs (including search engine optimisation) and regular brand revitalisations to consider.

Or it could be something bigger, such as an online store. An online store has global reach, while a store has local or at best regional reach, and hence far great potential return on investment. On the other hand, with an online store you save on people to man the outlet, as well as floor space, while the IT and systems investment might be equal. An industry rule-of-thumb in such a case is to price an online store at twice the cost of a flagship real-world store.

A third possibility is that digital and online is your entire business model. If there is a similar real-world business model to your online one, use that to benchmark the required investment. Think, for instance, publishing. You may already have a very good website but be looking for an iPad app. To cost that, work out, for example, what it would cost you to set up a magazine from scratch, or to re-jig your set-up to go from monthly to weekly (printing, production and possibly staffing costs).

Give to get

While that sinks in, consider this sobering bit of context:

  • You’re investing in complex, automated capacity
  • In return, if you do it right, you can expect increased sales and business growth.

In the publishing example, going online, mobile or social translates to a total or partial repurposing of your content for a whole new publishing platform, in return for extra revenue from a whole new channel.

Commensurate returns

Strangely, there exists the perception that online ventures require less investment for the same return. In the real world, few entrepreneurs would expect more than a doubling of their money within a year, and yet many business folk expect online ventures to deliver returns of many multiples over and above their investment.

This is simply unrealistic. The return you can expect will be commensurate with the investment you make.

Fallacy

It is a fallacy that online is cheap. The complexities and work involved in setting up your unique online presence, as well as its potential return on investment, will determine what a fair investment should be.

Wesley Lynch
Wesley Lynch is the founder and CEO of Realmdigital, a top South African e-business strategy and technology partner, specialising in Web, Social and Mobile platforms. As a technology entrepreneur, Wesley has over a decade of experience in the financial, business and software development industries. He is also the co-founder of MyTrueSpark which sees him regularly consulting with start-ups, Venture Capitalists and Angel Investors. Wesley has recently been recognised in the Old Mutual Entrepreneurship Guide as one of the 38 emerging South African tech entrepreneurs to watch.