This is one of the most important parts of the specification. It’s also one of the most contentious. We hate to talk about money.
When I do face-to-face consultations with clients I can see the discomfort when I bring up budget. We’re naturally wary when we’re not the expert.
I’m the same when I goto the garage with my car. I’m out of my depth and the mechanics costs make no sense to me. I normally feel short-changed if I don’t trust the mechanic.
Trust is key. It’s hard to trust online. The main concern is that if you set the budget range between X and Y, the supplier will just push for the higher budget. They’ll be greedy.
That said, as we discussed earlier, we need to set our expectations correct so we can complete the project successfully.
I think there are two things we can do here. The first is that a good supplier is more interested in building a long-term relationship with you. They will want to find a solution that helps you grow a succesful business so they can continue to get work from you over the years. They are unlikely to be greedy and are likely to find a solution that works for you.
The second thing we can do is to increase our understanding about what these costs are. The more insight you have into the behind-the-scenes processes, the better judge of budget you will be and better judge of supplier you will be.
We’re going to look at the different costs involved, how you can set a realistic budget and use that to find a reliable supplier.
Why budget Important
Before we learn what your budget is, let’s discuss why it’s important.
Let’s work with the car analogy. If you goto the garage and ask them for a new car, it’s great to know your budget and your goals. The most suitable car is the one that fulfils both criteria.
My friend recently drove from the UK to Mongolia. His budget was low but he had some clearly defined goals. It needed to fit 4 people comfortably, it needed to be able to go off-road, it needed a roof rack and lots of storage, it needed to be comfortable.
The range of costs for a car range from the hundreds of thousands to a few hundred pounds. By providing a budget, the garage was better able to find the right car for the job.
Actually, the garage couldn’t find the right car. But because my pal had prioritised his goals, the mechanic could make some expert recommendations. He found a great car that hit all his goals, except for the comfort.
That was a low priority and they compromised. As a results last week he’s just made it to Mongolia. He did it.
The same works for your site. If you set out the goals of your site, set which are immovable, which are your tent-pole goals and which you are happy to compromise on, an expert can better find the right tools for you.
If you don’t, then the expert is guessing. You’ll get the ‘how long is a piece of string’ answer and that’s not useful.
How do discover your budget / ROI
The most common reply when asked ‘what is your budget’ is - I don’t know or I don’t have a budget.
You do have a budget in mind and we can demonstrate this easily. If you get a quote back in the hundreds of thousands, then this would be most likely over your budget.
What we need to do is gauge what is a sensible lower and upper limit.
The best way to do this is to look back to our business model discussed at the start of the guide. We need to look the return on investment we will get from the site.
Let’s look at your anticipated profit over one year.
Let’s say a website has a life of three years. You will need ongoing work on it, but the main work will last 3 years.
Then what is an acceptable return on investment.
ROI = Gains - Cost / Cost
We estimate that the site will earn £25,000 in the first 12 months. You have a profit margin of 20%, so you earn £5000 in profit.
ROI = (£5000 - £5000) / £5000
ROI = 0%
So in the first year you would make no return on your investment. All the profit would be re-invested into the website.
However in the second and third year, you would not have this cost and would make pure profit.
Another way of looking at this would be to look at the ROI over three years. Say you can see a trend of 30% growth year on year, you might be able to extrapolate the following:
Year 1 Profit: £5000
Year 2 Profit: £6500
Year 3 Profit: £8450
Total Profit: £19,950 (over 3 years)
ROI = (£19,950 - £5000) / £5000
ROI = 299% over three years
So when you look at the costs over a three year period you can see that a £5000 investment is actually not very much.
If it is a startup business you may want to hedge your bets and start with a low investment over a single year.
If you have an established business that has demonstrated growth, then you can extrapolate out from this to determine a suitable investment.
The delicate balance is to make sure you can achieve your goals with your budget.
So now you might have determined a budget you are happy to work within. Let’s say within £5000 to £10000.
We can use this idea to see what kind of work we can get. We can use this to set our expectations.
I suggest asking for the amount of days work it will take a supplier and their day rate. The more complex the work, the more the day rate. So if you have some custom development, you’ll be looking at the higher end of the day rates.
If you need a site configured with minimal development, then you can expect the lower end of the register.
Average supplier rates vary. Within Europe and USA the day rates vary from £150 to £800 (and upwards!). On the matrix below we can see the total costs set against the various day rates.
— Spec Matrix
Our budget can get us between 20 days of a low £300 a day supplier and 12 days of a higher rate supplier. The matrix is useful to see where you lie on the spectrum.
We can use this to compare our quotes and set our cost expectations. We might even prefer to spend a few days with a higher cost consultant, who can map out a strategy and determine a detailed plan and then enact this with a lower cost freelancer. Or perhaps you can find a single agency that has a sensible rate that works for you.
Use the matrix to get an idea of the various costs and a way to set your budget. It’s ok to have a range.