Have you ever looked at Google Analytics and noticed a recent spike in website visitors? You say to yourself, “That’s good. That’s actually really good, right? Sweet.” That little internal monologue you had is probably the extent of it, though.
The reason the takeaways stop right there is that most companies don’t know how good that is. And specifically, how good it is in dollars. One of the most important part of running a business is knowing your numbers. So, if you and your numbers could join me for 10 mins, I will walk you through understanding the value of website visitors.
To follow along with your numbers, you’ll need to pick an amount of time (like one year), and gather these numbers for that time span:
Average sale price
Average lifetime of a customer
1. Calculate the lifetime value of a customer (LTV).
If you sign a new customer, how much revenue will that generate for your company? You’ll need to factor in sale price, how often they repeat, and how long they hang around. Keep in mind that our formula below is a simple calculation that will give you the amount of revenue generated for the average lifetime of a customer (the end of the life being defined by the customer no longer using your services, not death).
FORMULA: Average sale price per period * Average lifetime of customer = Lifetime value of a customer
EXAMPLE: $150 per month * 36 months = $5,400 LTV
In this example, the average sale price is $150 per month for an unlimited amount of users. An average customer sticks around for 36 months. Now, this number should change your mindset a bit: The example is no longer selling to a $150 customer, they’re selling to a $5,400 customer.
2. Calculate the total value of new customers.
How many new customers did you acquire over the year? In sticking with the one-year timeframe, we now need to dig up the number of new customers generated this year. From there, it’s simple:
FORMULA: Number of new customers * LTV = Total value of new customers
EXAMPLE: 200 * $5,400 = $1,080,000 new revenue generated
In this example we signed up 200 new clients during the year, they’ve created $1.08 million in new lifetime value. Now we’re talking.
3. Calculate the value of a website visitor.
How much is each website visitor worth from that pool of customers? Pull out the number of website visitors you received this year. Since we know the amount of new revenue we generated during this time period, we can easily solve for the value of website visitors:
FORMULA: New revenue generated / Number of website visitors = Value of each visitor
EXAMPLE: $1,080,000 / 325,000 = $3.32 visitor value
With 325,000 visits to the website during the full year, we now know that each visitor is worth $3.32 in revenue. Now that is good, just like I said at the beginning of the article, but it’s good in a numerical sense.
Now that you have calculated how much a new visitor or lead is worth to you, you know how much you should be paying to get them there. Want to ensure your Facebook leads stay under your visitor value? Lets chat.