It is important to know the value of a lead when managing a Pay-Per-Click (PPC) campaign. It is one of the first things we ask a new client during the discovery process and I am surprised that more often than not, they do not know the answer. They have a good idea of the value, usually based on the average order value and their average conversion rate. But too few companies actually run the hard data and crunch the numbers to determine what they should be willing to pay for a lead.
When I first got into the business field I had a manager who was very big on tracking the value of everything you did. If you have a main goal and know the value of that goal, everything you do during the process to achieve that goal can be given a value. For example, if you are in sales and you average $100,000 in revenue per month, you can literally place a value on every call you make during the month (even the calls that do not go well). For the sake of keeping the math simple, let’s say you average 50 sales calls a day (given a normal 5 day work week and 4 week month) and you generate $100,000 in sales from 100 orders, which gives you an average order value of $1000. During the month you make 1000 sales calls, some calls go really well and you make a sale while others are terrible and you get hung up on within 15 seconds. But you are in sales and positivity breeds positivity and the value of every call you made that month is $100. That was how my first manager wanted us to track our productivity, don’t get too high from the good calls or too low from the bad ones. At the end of the month, every call you make is worth $100 if you work hard and work smart. Of course over time, you want to grow your sales and increase your close ratio but, those are topics for another time.
This same line of thinking should be applied to tracking success online for both e-commerce and lead generation sites. Track and analyze the process of how you get potential customers in your sales funnel. Keep track of how many leads you need to attain a customer. Additionally, keep track of how much your average customer is worth in terms of increased revenue. Once you know how many leads you need to get to convert a new customer and you know how much that new customer is worth to your business, you can identify how much each lead is worth (both the good ones that turn into a customer and the bad ones that fall out of the sales cycle). It is just like my example earlier, but on a business level versus a personal level. Plug in the appropriate numbers and you can calculate the value of a lead to your business. Now this is a simplified example, but it is the foundation of determining the value of a lead. Once you identify that value, you should be managing (and more importantly) optimizing your PPC campaign to achieve a lower cost per conversion than the determined lead value. The greater “the spread” between your cost per conversion and your lead value, the better your return on investment (ROI).
What are your advertising goals? What is your return on investment? How much are you willing to pay per conversion? All of these questions seem pretty straightforward; however you might be surprised how many advertisers can’t answer them.
Defining your goals should be a priority in any form of advertising: online or offline. While traditional advertising has always had more barriers to tracking performance, online advertising offers ways to evaluate performance that some businesses might not be using.
Define what your conversion points are. Do you want your site visitors to sign up for a newsletter, become a member, or make a purchase? Next, decide how much you are willing to pay for that conversion. You may have many conversion points on your site and each one may be worth more or less than others.
What do you want to track? With the transparency of online advertising, you have the ability to track just about any metric you want. You can track how much revenue was brought in by a particular search engine, such as Google or Yahoo. You can even determine which keywords are generating conversions.
Once your goals are clearly defined, you can then begin to determine how effective your advertising is. Are you making a profit? What is your return on investment?
Investopedia defines ROI as “a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments”. You can easily calculate your ROI by using the following formula.
For example, if you earned $18,000 from your Google paid campaigns and you spent $4,000, your return on investment would be 350%.
If you are able to determine if your goals are being met, you can easily begin to optimize the performance of your efforts. If you are not seeing a return, you can also determine what efforts you should not continue or work to improve.
Spring training is in full swing and if you are playing baseball this is probably an important question. When it comes to measuring the success of a website, however, the term “hits” should be banned like performance enhancing drugs are banned in baseball. Wait, they are banned right? Remember the days when websites would brag about how many hits they received per day? You would visit a site and they would have the “Hit Counter” at the bottom of the home page. The perception was the higher the hit count, the more popular the website. Those days are long gone, but I am still surprised people refer to their “hits” as a measurement of their site’s success.
As defined by Webopedia.com, a “hit” is “The retrieval of any item, like a page or a graphic, from a Web server. For example, when a visitor calls up a Web page with four graphics, that’s five hits, one for the page and four for the graphics…” Given this reality, the number of hits has no bearing on the popularity of a site. If one visitor can count as many as 10 “hits” or more in one visit depending on the number of graphics on a page, I’m sure you can see the reason website “hits” as a measure of success is so flawed.
It’s said that Page Views or Unique Visitors are better metrics to determine the success of a website and that’s true when comparing them to counting hits. But if you run a website that offers a product or service, you ultimately want visitors to convert into customers. If your average visitor navigates through 10 different pages and spends 10 minutes on the site, would you consider your site successful? If you had 1 million unique visitors a month, would you consider those visitors qualified? I don’t think either one of those metrics, by themselves or together, provide enough data to determine the quality of the traffic or success of your site if you’re selling a product or service. They’re an upgrade from counting “hits”, but then again batting .200 is an upgrade from .175, but neither will keep you in the big leagues!
When evaluating the success of a website, if I had to choose just one metric to hang my hat on, it would be cost per conversion. But I would recommend you review all the metrics together to get the best picture of the “health” of your website. Ultimately, you want visitors to make a buying decision and engage in a transaction whether it’s purchasing a product or subscribing to a service before they leave. Does it matter if they spend 10 minutes on your site or 1 minute before they convert? Maybe, but I am sure it matters more if they convert first and foremost. Next, look at the other metrics to determine how to lower your cost per conversion and optimize your site’s usability. Just don’t count hits, unless you are in spring training.