Value Assessment
Why Google Analytics
By investing in Google Analytics, IVK will gain tangible assets through marketing which is oftentimes seen as intangible. Google Analytics will allow IVK to keep track of how well we are doing overall digitally. We can our track conversions, see where we are losing our customers and where our marketing strategy is working. The reason for tracking conversions is to see where sales, sign-ups and other activities are coming.Looking at the data from the ROI, IVK can expect to see an increase in revenue. This is based off a report given by Google Economics (2011).
“About 1/4 of all accounts have less than 1% conversion
rates. The median was 2.35%, but the top 25% of accounts have twice that –
5.31% - or greater. Check out the far right red bar – the top 10% of AdWords
advertisers have account conversion rates of 11.45%.”
Return on Investment - Google Analytics 360
Return on Investment
|
||||
Project
return/saving
|
Year 0
|
Year X+1
|
Year X+2
|
Year X+3
|
Salary savings (10
RIF)
|
—
|
-$652,854
|
-$652,854
|
-$652,854
|
Outside vendor
savings
|
—
|
-$785,020
|
-$785,020
|
-$785,020
|
Depreciation/
amortization
|
—
|
$ -
|
$ -
|
$ -
|
Total cost savings
|
—
|
-$1,437,874
|
-$1,437,874
|
-$1,437,874
|
Profit before taxes
increase
|
—
|
$1,437,874
|
$1,437,874
|
$1,437,874
|
Taxes at 30%
|
—
|
$431,362
|
$431,362
|
$431,362
|
Profit after taxes
|
—
|
$1,006,512
|
$1,006,512
|
$1,006,512
|
Add back
depreciation
|
—
|
$ -
|
$ -
|
$ -
|
Projected cash flow
|
-$595,000
|
$1,006,512
|
$1,006,512
|
$1,006,512
|
We spend $595,000 in
cash at the beginning of the project for 3 years license (considered as Year
0). Then we anticipate a cash return of $1,006,511 in each of the next three
years using the numbers just outlined.
|
||||
Assumptions
- We will save $652,854 in salaries and benefits for a reduction of 10 customer services positions that will no longer be needed due to the increased analytics, improved online presence and more efficient website services.
- Savings of $785,020 from removing additional vendors that will no longer be needed due to the new in-house Web Analytics Manager who will be able to give detailed customer service information.
| 3. | Here are the savings associated with the new order processing system. | |||
| 4. | The new system will enable the company to do the same work with 10 fewer employees. The savings in terms of fully loaded salary and benefits will be $652,854 per year for three years. | |||
| 5. | Order processing fees paid to an outside vendor will be reduced by $485,020 per year. | |||
| 6. | There is no depreciation as it is a yearly license | |||
| 7. | The total annual savings on the income statement is thus $1,127,854 per year. Now we have to convert this profit-based figure to cash | |||
| 8. | First, take into account the tax bill on the additional profit represented by the annual savings. We assume that the marginal tax rate for this company is 30%, so the company will be liable for an additional $431,362 per year in taxes. That gives us an annual after-tax profit or gain (in round numbers) of $1,006,512 for each of the three years. | |||
Payback ROI
|
0.59
|
|||
Initial investment
|
= Payback period
|
$ 595,000.00
|
||
Cash flow/year
|
$1,006,511.00
|
|||
Net Present Value
(NPV)
|
||||
Net Present value (PV) =
|
(595,000) +1,006,511/(1.09) +1,006,511/(1.09)2
+1,006,511/(1.09)3
|
|||
Net Present value (PV)
=
|
$105,967.00
|
|||
Internal Rate of
Return (IRR)
|
159%
|
|||
Tangible Benefit
|
Dollar Value
|
Increase advisory fees by 15%
|
$5,225,275
|
Increase sales (residuals) by 25% based on conversions
|
$26,948,845
|
Increase processing fees by 25%
|
$1,588,089
|
Total Increase in
sales revenue
|
$33,762,209
|
Based on IVK Financial
Statements (Austin, Nolan, & O’Donnell, 2016)
Assumptions
Advisory fees from last balance sheet = $34,835,164 + 15% = $40,060,439
Average sales based on income statement amount =
$107,795,378 + 25% = $134,744,222
Processing fees from last balance sheet = $6,352,356 +25% =
$1,588,089 = $7,940,44
Google Analytics enables marketers to have a stronger grasp of their audience, which will generate improved marketing strategies to specifically target their ideal customers.
The industry that IVK operates in, the finance and insurance industry, has the second highest conversion rate among all other industries trailing only the home goods industry. Utilizing Google Analytics would result in a tremendous positive impact for IVK by increasing the amount of traffic to our website, and leading to increased revenue to help the company achieve the growth we saw in our startup days. Furthermore, the data provided from Google Analytics 360 will allow IVK to better service existing customers in addition to enabling the company to better assist with the large number of customer inquiries that are currently not being fulfilled and create a well establish a solid marketing strategy.
References:
Austin, R. D., Nolan, R. L., & O’Donnell, S.
(2016). The adventures of an IT leader. Boston, MA.
Carr, N. (2003). IT Doesn’t Matter. Harvard
Business Review. Retrieved from: https://hbr.org/2003/05/it-doesnt-matter
Frost, P. (2017). 15 ways that prove Google
AdWords is a great investment for your business.
Google (2011). Google’s Economic Impact.
Retrieved from:
Kim, L. (2016, March 15). Google AdWords average
conversion rates by industry [study].
Knight, J. (2015). Harvard Business Review
(HBR) - Return on Investment. Retrieved October 3, 2017, from
https://play.google.com/store/apps/details?id=com.hbr.domestic.android.reader
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