How to Figure What Each Website Visitor Is Worth To Your Company
By Randy Kauffman, Super Cool Sites, Inc.
In this article you will learn the most important thing about your business website, how much each visitor is actually worth to your business. This is extremely important. Knowing the value can determine all future marketing decisions.
Also, you will learn how to use a simple calculator to determine these values. Let’s get started.
Every Visitor Has A Value!
No matter how many visitors you have, each one has a specific value that can be determined.
In order for your business to make money, it must be selling a product or a service. Each product or service generates revenue for your company.
All company revenues should have a profit margin built in.
Here is What to Do
1. Put Google Analytics On Your Website
If you don’t have Google Analytics on your site, put it there. You will be able to get all of the information you need to determine each visitors’ worth.
Once you have analytics set up, look to see how many visitors you had last month. By using conversion goals, you can tell how many goals were achieved. The goals might be any of the following:
- Phone Call
- Contact Form Filled In
- Pricing Request
- Newsletter Sign Up
- Product Purchase
- And a few more
2. Determine Value
The easiest way to do this is by first determining the actual revenue received. If you sold a product for $300, you got $300 in revenue. If you sold a service for $80 per month for one year, you got $960.
Once we know the revenue value, you should know the profit you make for each product or service. Divide the profit by the revenue to get a percentage. Product Price $300, Profit $100 100/300 = 33.33% profit
3. Closing Ratio
Out of the contacts that you get on-line, how many do you actually sell? If you’re selling a product online, it’s easy; you get 100% minus any returns. If you selling a service and you got a price request, you should know what percentage you actually close.
It might be something like 50%.
Here is a simple formula:
Sold a service for $200 per month for one year: 200 x 12 = $2400.
You sell 50% of the requests. Your profit margin is 50%.
So your profit for each request is: 2400 x 50% x 50% = $600
5. Conversion Rate
For the first part of the value, you need to know the conversion rate. Let’s say 100 visitors went to your website and 2 requested pricing information. Your conversion rate is 2%.
6. Now we can determine the simple value of each visitor
100 visitors = 2 requests = 1 sale of $2400 = $1200 profit
1200 / 100 = $12.00 value per visitor
7. But Wait There Is More – Referral Value – Lifetime Value
Each customer has more value than a one-time sale. If they like the product or service, they will tell their friends. A percentage of friends will buy. This figure might be anywhere from 15% to 30%.
Each customer also has a lifetime value. If someone bought from you once, they are more likely to buy from you again. The lifetime value of a client might be double the original sale.
But let’s be conservative. Keeping the original scenario, let’s determine the actual value of a visitor.
8. Actual Value
Now let’s determine the full value of each visitor.
Average Conversion Revenue $2,400 x 50% profit = $1200. $1200 x 50% closing rate = $600.00
Referral Value 15% x 600 = $90.00
Lifetime Value $4,000 x 50% profit = $2,000
The total conversion value is $2,690.00 in profit. This means that each visitor is now worth $53.80 instead of $12.00. This makes a huge difference in determining future marketing.
Now that you know how much each visitor is worth, you can determine how much you can spend to get people to your website. Using the above scenario, If we spend $8 to get a visitor to the site, you would make a $4 profit for the first year and $45.80 lifetime profit. As you can see it might be advisable to advertise for a first year loss to make long term gains. If you spend $15 for each visit, you would lose $3 for the first year, but make $38.80 per visit for the long term.
This is why you see and hear radio and television ads telling you to go to abc-company.com. They have already determined the value of each visitor and they know how many visitors they will get for each commercial. Very Powerful Information!
If you would like an easy way to determine these rates and play around with them, I made a calculator that you can play around with. Click Here
Thanks for reading and good marketing to you!