The TCO of Web Analytics Solutions, Part 2

Part one of this series discussed the problem of Web analytics solutions’ TCO (define). I began by outlining the unexpected technology expenses you may encounter. Unfortunately, most analytic budgets cover only the technology costs and fail to estimate the cost of professional implementation and business consulting services (internal staffing and external partners).

As I’ve said before, the biggest complaint I hear about Web analysis is that a company purchases an expensive solution but gets little more than meaningless statistics out of it. Without an experienced analytics team, that’s exactly what happens.

In a recent report, JupiterResearch notes:

Staffing is strongly correlated with the likelihood that analytics applications will be used well…. Companies assigning at least one dedicated resource are at least twice as likely as those assigning none to measure conversion rates, integrate external search marketing data, measure marketing spending, as well as use A/B testing strategies and funnel analysis tools to incrementally improve Web sites.

So, how do professional services add to your TCO?

It depends largely on the route you decide to take. You have three options:

  • In-house: You can hire dedicated staff to oversee and implement your analysis internally.

  • Outsourced: You can hire an experienced, objective consultancy, such as my company. I won’t attempt to hide my preference here. An outside team of professionals who, combined, have implemented hundreds of different Web analysis strategies has an obvious advantage over internal employees trying to implement one by themselves.
  • Combo: Optimally, what we’ve seen to be most successful is to pair an experienced outside team with an internal dedicated team.

Whatever option you choose, you’ll encounter some, if not all, of the following costs:

  • Full-time employee (FTE) costs. By far, your biggest potential cost is FTE expenditure. To get the most from your Web analytics software, you must have someone, even a team of people, dedicated to internal communication, data integration, internal meetings, tool maintenance and configuration, and so on.

    If you have one FTE dedicated to Web analysis, calculating the expense is easy. If you disperse duties across several individuals in different departments, such as IT and marketing, you must estimate the time associated with common analysis tasks on a weekly and monthly basis. Once you’ve figured out the total time needed, calculate it as a percentage of the FTE’s salary for gross cost. A dedicated FTE can cost you anywhere from $50,000 to $100,000 in annual salary, plus overhead expenses.

  • Implementation services. You’ll encounter additional expenses in customizing an analytics tools to conform to your business requirements. Be sure to ask your analytics software vendor for pricing for these types of services.
  • Training and skill development. Technical and business user training costs can be high, particularly as these often involve on-the-job training. Don’t underestimate the training that’s needed to get maximum utilization of the technology.
  • External analysis services. External Web analytic companies can provide success metric definitions, financial modeling (including TCO analysis), analytic tool recommendations, implementation, accuracy audits, and ongoing analysis. Even though such services add to the initial cost, they’re invaluable in helping save money and get better information in the long run.

Web Analytics TCO Checklist

Now that we’ve looked at all the potential expenses associated with a Web analytics solution, we can devise a handy checklist for calculating TCO. To find your TCO:

  • Calculate annual analytic software package and service licensing costs, taking into account a five-year traffic forecast.

  • Include such “hidden” technology costs as Microsoft Excel licenses and hardware and software upgrades.
  • Be wary of cost forecasts provided by analytic software sales representatives. It’s in their best interest to underestimate all costs outside their own.
  • Calculate your professional service costs accurately, including FTE expenses, implementation, training, and external analytics services.
  • Involve your finance department in the financial analysis to ensure they take partial ownership.
  • Forecast data integration costs, including offline data, online data outside the Web site, and so on.
  • Consider the potential migration costs of switching to another solution 3-5 years from now.

Questions, comments, like to know more? Let me know if you’ve run into TCO problems implementing your solutions. I may include your story in a future column.

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