Your website and software development have the capacity to be revenue generators — investments in creating real, long-term, sustainable shareholder value. While some people view it as a cost center and a profit-reducing expense, a successful website can absolutely generate new business, and this form of efficient marketing can be immediately monetized.
Similar to real estate, web and software development should be viewed as a long-term, lucrative investment. To illustrate: when your company purchases a residential or commercial building, you anticipate the monetary benefits to continue over a period of time. In contrast, when you pay a water bill, for example, the benefit has already been received. Your company cannot capitalize on the cost over time; it’s simply an expense or a sunk cost.
The mindset around investing in the company website should reflect the fact that it creates lasting shareholder value and is an opportunity to capitalize on revenue generation over time. Additionally, it is a malleable asset that can be updated to reflect company achievements, testimonials and statistical facts as time progresses.
Here are Four Reasons to view your website as an investment.
1. Web Development is Risk Resistant
The primary goal of investing is to see the value of your investment increase over time. There may be highs and lows, but there should be a gradual increase for the patient investor who believes in the market. That said, different investments carry different levels of risk. A company bank account will accrue a small amount of interest, but it’s a relatively low-risk and low-maintenance investment. Whereas, investing in real estate involves increased risk, especially if the market takes an unexpected turn, but the yield can be substantial.
While your website is susceptible to a certain degree of risk — diminishing traffic, for instance — you have much more tangible control over your subscriber numbers than you do over interest rates or the real estate market. For instance, if you want to draw more traffic to your site, you have a variety of available tools — from online advertising to content marketing to obtaining fresh links. The options for generating user traffic are endless, and putting them into practice is often almost effortless. In fact, there are hundreds of ways to drive more traffic to your website — and you can often see immediate, lucrative and dramatic results.
This stands in sharp contrast to the outdated idea of depending on macroeconomics information such as better interest rates or a more robust real estate market, where you might have to wait quite some time for appreciation.
It’s important to look at your website and software development work as something worth nurturing in and investing in over time. With that mindset, you can continue to add significant value to your business and to your bottom line.
2. A Website Is a Revenue Generator
The fact that many organizations view their website as an expense rather than an investment can often be attributed to people not understanding the software investment's tangible and intrinsic value. Instead of investing in the most lucrative, customized software, many companies choose a short-sighted approach in their efforts to keep costs as low as possible.
Still, if you view your software and website as a long term investment, every useful addition is building upon the value of your initial investment — much like DRIP investing. These additions can come in various forms, from optimizing technology to decreasing load times to adding high-quality content.
For example, you may invest part of your spend in giving the website a modern, fresh and mobile-friendly layout. Or you may want to ensure that you have a frictionless and user-friendly mobile app. As a result, you are building upon an asset that will continue to pay dividends well into the future.
3. Capitalize on the Costs
There are several ways to capitalize on the costs of website and software development. Over five years, these costs are typically amortized, so the impact to the P&L is spread. With regard to taxes, you can treat these types of investment expenses in one of three ways:
- Code Sec. 174(a) allows for expenses to be deducted during the time frame when they are incurred or paid.
- Code Sec. 174(b) lets you capitalize on the cost of software and amortize the costs for 60 months, which start when the software is completed.
- Code Sec. 167(f) enables the option to amortize the software over 36 months — after the software is first utilized.
To support cost capitalization of website and software development you will need detailed records of the following and more:
- Development project status reports
- Payroll records
- IT development
Capitalization can occur at the application development stage and include these items related to software configuration and interfaces:
- Hardware installation
- (Internal or external) costs and time
- Testing and processing
In addition, functional-based upgrades can also be capitalized. See the table below for further details on monetization of website development costs.
Table via Baker Tilly
4. A Customer's Initial Contact — “Prospecting”
This is one of the most important factors — getting people to click on your site!
Businesses make short- and long-term capital investments every single day. These can vary from expenditures on office equipment to intellectual property to staff to investments in equities, bonds, money market instruments, etc.
Many companies have no issue hiring new salespeople with the knowledge that, while potentially losing capital near term on the balance sheet, the investment will pay off in the long term. This is called investing in revenue generators, rather than cost centers. Companies thrive off of revenue-generating investments. This is their “bread and butter.”
Still, many fail to appreciate that your website and external-facing software are the first points of contact for your prospects and clients. Even internal-facing software development can help employees perform their jobs more efficiently and effectively.
Consider the actions you take when you hear of a new business: you immediately search for the company online using your mobile device or desktop computer. It's as simple as entering the name in a Google search box.
You then usually click on the first link to do initial research. If you don't find what you were initially looking for, you continue to the next link until you find the business. You’re not going to open a phone book or drive around looking for the physical location. Everything is online; the web is ubiquitous!
Your website is the most relevant and accessible point of contact for your employees, prospects and customers. Imagine a scenario where customers search for your business online, can't find it, give up and move on to your competition! The total number in potential lost sales would be staggering.
Even your salespeople benefit from customers and prospects exploring your website before contacting them to get more information. If your website and software development provide a user-friendly, attractive and quick-loading site — you can anticipate significantly increased traffic, new, revenue-generating customers and many more “eyeballs” on your website.
Additionally, your website acts as an agent to address questions, be informative and provide important information. Not to mention, a website works 24/7 — while everyone else is sleeping. It is constantly accessible and can be continually customized over time.
Before the rapid expansion of the internet, salespeople were much busier making cold calls, sending direct mail pieces (snail mail) and advertising on TV, on billboards or through other physical means. They were depending on someone answering their ‘landline’ or driving by a billboard. This is a completely outdated, not to mention inefficient, form of advertising today, customers want to perform their own research before reaching out to you. Our society spends their days, and often their nights, in front of a computer screen.
A high-quality, aesthetically attractive, user-friendly website will continue to offer value to your customers and prospects. Your website is at the epicenter of all your marketing efforts, so creating a strong, well- curated website is an invaluable investment that can lead to long-term, accruing dividends and appreciation for your company.
Our Springbox CEO, Tom West, put together a quick guide to digital transformation. Check it out here: