Digital Marketing is unique because of its ability to measure and record customer behavior. You can track practically anything on your website. Unfortunately, if you’re a beginner to online marketing, having dozens of metrics to keep track of (Bounce Rate, CPA, Backlinks, CTR, etc.) can be confusing. While all these numbers are important, they don’t answer the very first question you should be asking yourself:
Will my digital marketing turn a profit?
There are only two numbers you need to know to answer that question. Getting there just requires a Google Analytics account (which is free) and very simple math.
1. Value Per Visitor
First we need to know what each visitor to the website is worth to you. Some visitors will buy things, some will not, we’re interested in the average amount each will spend (average order value). If you have an ecommerce website, simply divide your monthly online revenue by the monthly traffic. If your website is focused on lead generation, you’ll use the following equation:
Value Per Visitor = Average Order Value*Conversion Rate*Closing Rate
- Average Order Value is the average amount a client will spend.
- Conversion Rate is the percentage of visitors who take a desired action, for example filling out a form.
- Closing Rate is the amount of conversions that turned into clients divided by the total number of conversions. It tells you how often people who convert (that means taking a desired action like filling out a form or making a call) on your website actually become clients.
2. Cost Per Visitor
Now we see how much you’re spending on each visitor to your website. If you’re running an AdWords campaign this will come from your keyword bid. If not, you’re probably paying for link building, email campaigns, or general SEO work. Divide your total monthly costs from digital marketing effort by monthly visitors.
Here’s the big reveal:
If Value Per Visitor is higher than Cost Per Visitor your website will be profitable.
Let’s look at an example.
Say 5% of visitors to your website fill out a form. 25% of those people end up becoming a client. The average client spends $200. Your VPV is:
$200 * .05 *.25 = $2.50
Also you’ve spent $500 on an AdWords campaign, $200 on an email blast, and $500 on SEO. You get 400 visitors. Your CPV is:
($500 + $200 + $500)/ 400 = $3.00
Since $2.50 < $3.00 your campaign is not profitable, and it won’t be until either your VPV is higher or your CPV is lower.
A lot of people assume the problem with their website is that it doesn’t get enough traffic, but if your CPV is higher than your VPV, spending money on getting more traffic will not help. In fact, that will only drive you deeper and deeper into the hole. In the example above, you’d be losing an average of 50 cents for every visitor to your website. Yikes! As long as CPV and VPV stay where they are your website will never be profitable.
Most likely, the problem is that the people getting to your website aren’t buying, filling out a form, or calling often enough. This could mean the structure of you website doesn’t encourage people to do so; or that your marketing efforts are targeting groups who aren’t interested in your product or service. We call these Conversion Rate problems. Another possibility is that you’re just paying too much for digital marketing. Either way, more traffic is not the answer.
On the other hand if your VPV is higher than your CPV, you should decide if you’re happy with those profit margins. If you are, you should concentrate on driving traffic to your website.
To summarize, if you are spending more on a visitor than the average visitors value, you need to work on increasing the value or decreasing the cost of the average visitor. Once you are happy with the value per visitor, you can work on driving more traffic to your site.
If you’d like to learn more about Google Analytics, or how to ensure profitability for your digital marketing campaign, fill out the form on the right for a free consultation.