Articles

How to Increase Website Sales with Metrics

"WOW, I spent $2,000 on advertising last month that sent 6,000 visitors to my website and had only 20 sales!"  Sound familiar? 

Was that a good deal?  Should you spend more or less on advertising? Did the strategy help you reach your goals? Or do you need to change your advertising copy, headlines, layout, and pricing?

As website owners we "need to know" what is essential to realize our goals. We are forced to wade through volumes of information and discern what will help versus what is nice to know.

Measures that evaluate the performance of your advertising and website strategies are called "key performance indicators" or Performance Metrics. Through the use of numbers you can identify "gaps" between where you are today and where your business goals require you to be in the future to be successful. 

            "When performance is measured--it improves. When performance is measured and reported--the rate of improvement accelerates."

While there are many measurements that website owners can gather, three top the list and should be diligently measured and reported to be successful:

• conversion rate,
• cost per action,
• value of a buyer.

Manage and measure these three metrics and you will achieve your website strategic goals.

1. Conversion Rate
Website conversion is the percent of visitors who take a desired action thus turning them into prospects or customers.

This action will vary from site to site. For example it may be the sale of products, membership registrations, newsletter subscriptions, software or eBook downloads, or just about any activity beyond simple page browsing.

For conversion rates to yield the desired results several factors must be satisfactory: level of interest of the visitor, attractiveness of the offer, and the ease of the process.

The most common website conversions that are closely tied to the growth of your business include:

• Product sales
• Service sales (email opt-ins or subscription sign-ups)

Your conversion rate will assist you in evaluating your advertising efforts and the satisfaction of your visitors (traffic) to your website.  The formula to calculate your websites conversion rate is:

Completed Actions (Sales) / Total Number of Visitors = Conversion Rate

Be sure to use the same time period for completed sales and total number of website visitors, for example: 

Time Period:                June 2010
Total Product Sales:                20 (Number of sales not dollar amount)
Total Visitors:                         1500
Sales Conversion Rate    =  1.3%       (20 sales /1500 visitors = 0.013)

Therefore you can conclude that 1.3% of your visitors during June were satisfied. This provides you with actionable information to continue with the current advertising strategy, or test new advertising, new copy, etc.  Through testing you will be able to determine what influences your conversion rate so you can adjust accordingly if the rate drops or increases.

Increase in your sales conversion rate means an increase in revenue, profit, and return on investment (ROI).

2. Cost per Action
The effectiveness of many forms of online advertising are measured on a cost per action basis. This measurement will help in controlling advertising spending and return on investment (ROI). 

Your “cost per action” is the advertising cost you pay for one completed action. As with your conversion rate, an action may be generated as emails opt-in, a product sale or downloading a report. The cost of action formula is:

            Advertising Cost / Total Completed Actions = Cost per Action

Be sure to use the same time period for completed advertising costs and total number of sales, for example:  

Time Period:                June 2010
Total Advertising Cost:          $500
Total  Sales:                             20 (Number of sales not dollar amount)
Cost per Action           =          $25.00 ($500 ad cost / 20 sales = $25.00)

This informs you about how well your advertising and website strategies perform relative to your advertising investment. Preferably you want a low cost per action. This is achieved by either increasing your conversion rate (adjusting your website strategy) or reducing your advertising cost (adjusting your advertising strategy).

3. Value of the Buyer
This one is a little more difficult to understand.  "Value of the Buyer" evaluates the efficiency of your advertising and website strategies at turning visitors into profitable customers.  It is the average gross profit you earn from a completed action.  To calculate this metric using the formula below you will need some additional data:

• Average Action Value--This is the average dollar value of products/services of all orders completed in the given time frame (do not include tax and shipping).
• Gross Profit--The dollar amount profit you make on a product or service. Do NOT include advertising costs.

            Average Action Value x Gross Profit as % of Sales = Value of a Buyer

Again, be sure to use the same time period for calculating the value of the buyer, for example:  

Time Period:                            June 2010
Average Value per Sale:         $50   (20 visitors bought an average of $50 per sale)
Gross Profit Margin:               80% (selling price - wholesale cost = profit / selling price)
Value of the Buyer  =             $40.00 ($50 average per sale X 80% gross profit = $40)

In other words, you receive $40.00 in gross profit for every customer through your website.

Summary
If your cost per action (#2) is less than your value of the buyer (#3), you are making money. Increase your advertising budget or maximize your current website strategy.  If, however, your cost per action (#2) is greater than your value of the buyer (#3), you are losing money and need to reduce your advertising budget or find alternative advertising strategies or increase your conversion rate (#1). 

By using Performance Metrics you will reduce your fears and have an objective collection of data to assist you with decision making for your website.  These measurements will give you solid "need to know" information to guide your website strategic planning, establish baselines for future actions, and confirm you are going in the direction of your goals.

Improvement requires constant feedback--performance metrics provide that and take the uncertainty out of decisions. Change becomes easier.

The TrafficTesters Team
http://www.traffictesters.com provides tested, rated and reviewed online traffic and advertising sources that help you find the best places to advertise!