Every marketer struggles with accountability. It keeps chief marketing officers up at night and makes it more difficult to fund new marketing initiatives. The key is the ability to demonstrate return on investment. We've developed a simple methodology to model web ROI using basic analytical tools.
The first step is the hardest, and requires that marketing teams actually communicate with sales and operations. It's placing a dollar value on the successful outcome of a web experience. For e-commerce sites, it's easy. What's the value of the sale? For recurring models, like wireless, ISPs or credit card holders, it's the average revenue per user (ARPU). For affiliate sales, like insurance or B-to-B industries (e.g., software vendors), the value may be considered the total cost of ownership over the length of the contract. Whatever metric works for your business is fine; the important part is assigning a measureable value to it.
Every sales manager understands the sales funnel. Working backwards from the sale, there's the close rate of the deal as measured from various points along the funnel. From order to close, the rate might be 50 percent. From inquiry to order, it might be 10 percent. It's the same when you're calculating the conversion rates at different stages of a web experience.
For example, if the end value is $150 dollars and we know that 50 percent of the prospects who complete a registration form become customers, then the value of reaching the stage of completing the form can be found by multiplying $150 by 50 percent, arriving at $75. Now you can go to your web analytics reporting and start seeing what percentages of visitors make it that far, and then decide on a couple key decision points.
If your Google analytics data shows that 50 percent of visitors who reach the registration form leave without completing the form, you know that the value of simply getting a visitor to the form is $150 X 50 percent X 50 percent = $37.50. If 50 percent of the visitors who view a particular piece of content go to the registration form, then the value of that piece of content is $18.75. And if you have a 50 percent bounce rate from the homepage, it's now $150 X 50 percent X 50 percent X 50 percent X 50 percent = $9.38.
These numbers are hypothetical and, in most cases, your conversion rate at each stage will likely be much lower. But it's the formula that counts. From a budget standpoint, if each web visitor is worth $1 and you get 1 million web visitors each month, you should be able to spend $1 million each month and still achieve a positive ROI. If each sale is worth $150 and you convert 1 percent of your million site visitors, you're generating $1.5 million in revenue each month.
Taking the time to build out this simple model accomplishes two things: one, it will help you figure out the ROI of your web marketing program and two, it will show you exactly where you should focus in order to optimize performance. If you have a high percentage of visitors who make it to your registration page but don't convert, that's where you should spend your time and money. If everyone is bouncing off your homepage, it may be an issue of web design, content or even search.
The first step is to understand the value of each action and its impact on overall conversion. If you'd like to learn more about the formula and the process, we've produced a full whitepaper outlining it. Show it to your CEO and CFO and you'll get all the funding you need. After all, it's all about ROI.
John Kottcamp is chief strategy and marketing officer at Tahzoo, a customer engagement agency.
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