But for many businesses, calculating the ROI (return on investment) of digital marketing is a challenge. This challenge comes from the fact that many of us simply do not know the financial value of a website visit.
Why Your Business Should Know the Value of a Website Visit
Consider the example of a slot machine in a Las Vegas. You’re having a great time putting in your money and it’s certainly an enjoyable experience. But then you realise for everyone pound you put it, you’re only getting 50p back. It’s fun, but that’s not good business.
But what if you knew that for every pound you put in the slot machine, you’d get £1.30 out? I’m sure, like me, you’d play that machine all day long. Because it makes business sense. The same applies for any kind of marketing. If you know the value you’re getting out for every pound you get in, you’re much better placed to know whether that is money well spent or not.
So you now know why you should know the value of a website visit, but how do you calculate it? By following these simple steps, you can calculate the value of a visitor to your website in terms of the contribution to your gross profit. Over time and with more data, you’ll find you’re able to refine this maths further:
1) Know the Value of a Sale
How much is a sale worth to you in your business? Hopefully, you know this without too much thought – for the majority of businesses, this is the average selling price (ASP).
So let’s say you sell holiday accommodation in the Lake District. You have a range of properties available but your overall average selling price is £1,000. Of that, you know you make around £300 gross profit (GP1) – so the value of a sale in your business is £300.
2) Know Your Conversion Rate
Now you need to know how many website visitors you need to make a sale – your conversion rate. This means having the data from your website to fully back up your assumptions, so make sure you use analysis tools like Google Analytics to monitor how many visits you get to your website and then how many of those go on to buy from you.
Going back to the example of the holiday accommodation company, let’s say that for every 100 visits to your website, you get one booking. That would mean you’re converting at 1%. From this, you know that if you get 100 visits to your website, you’ll get 1 booking and therefore £300. So every 100 visits is worth £300 to you – and therefore 1 visit is worth £3.
Applying the Value of a Website Visit to Campaign Analysis
Once you know the value of a website visit, the final piece to the puzzle is to know the cost of each visit. So for each marketing activity you undertake, be it online or off, how much does it cost you and how many visitors does it produce? This means you need to track how many website visitors you get from a marketing campaign and how much that campaign costs.
For offline marketing, there are various techniques to calculate enquiries (the offline equivalent of a website visit) from a marketing campaign. For example, you might provide people a specific discount code on a leaflet which they have to quote when calling you, in which case you simply count up the number of people who called and quoted that discount code.
If you know that the leaflet cost you £2,000 to produce and that it gave you 1,000 new visits, the cost per visit was £2.00. Now that you’ve calculated the value of a visit in step 2, you can see that, for this particular example, this is a good investment – you’re spending £2.00 to get £3.00 out.
Online, this is a little more complicated, but not impossible. There are various techniques to help you to track the leads you get from online campaigns too.
For example, you might use the Google URL Builder tool to build a custom URL for a page you plan to share. You can then track that URL in Google Analytics (or your Analytics programme) to see how many people came to your website through that link. Simpler still, you could use Google’s new Channels section on Analytics to see the amount of traffic each channel produced, be it social, direct, organic search or paid ads:
You’ll also need to assign a cost to each marketing activity. You may not have clear cut production costs like a leaflet would, but you know if you have spent any money on marketing materials to use on this particular campaign, or you know the cost of paying the employee/agency which undertook the work for you. In PPC terms, this would simply be the ad spend plus any management costs. Thus, you can assign a cost and track how many website visits it produced. Assuming you also know the conversion rate and the value of a sale, you can determine how worthwhile this activity was.
By tracking the impact of your work, knowing the cost and knowing the value of conversions, you can use simple maths to work out whether the activity makes business sense – and whether it’s worth playing that slot machine again or not.
Other Considerations When Analysing Marketing Activity
Of course, there are other things you need to take into account when analysing the full ROI of any marketing activity. The calculations provided in this blog provide a guideline, allowing you to assess the value of a website visit in terms of the contribution to your gross profit (gross profit is the total revenue less the cost of sales).
Because gross profit doesn’t all drop to the bottom line, you may wish to elaborate on these calculations over time. By incorporating the cost of the marketing activity and other operational costs, and the conversion rate of each specific activity (because not all activities will generate the same conversion rate) you can calculate exactly what each specific activity contributes to your net profit (i.e. your bottom line).
If you have any questions about calculating the value of a website lead, feel free to leave a comment in the comments box below or call us on 0115 948 0123 to find out how we can help you to improve the ROI of your marketing.