Why Do I have a Business Website and How is it Doing?
Part 2: Monetization - How Much are my Website Goals Worth?

Last week we looked at why you have a business website and why it is valuable to you. In this discussion we concluded that every business website's goal is to make money directly or indirectly by getting visitors to do something on the website, and that it is essential that you clearly define what it is you want your visitors to do and to assign a value to each goal.

Why Do I Have a Business Website and How is it Doing?
Part 1: Purpose - What is the Ultimate Goal of My Website? June 10, 2009
Part 2: Monetization - How Much are my Website Goals Worth? June 17, 2009
Part 3: Site-Assessment - How is My Website Actually Performing? June 24, 2009
Part 4: Taking Action - What Do I Do With All This Data? July 1, 2009

Determining Conversion Goal Value
In this post I'm assuming you've already made a list of your website goals, and you are ready to assign monetary values to them. The key to the monetization process is to work backwards starting with the revenue your website generated in a given time period and working your way back along the conversion funnel, attributing revenue along the way. This monetization process can really be used to assign monetary value to any website behavior but for now we will focus on monetizing the key conversion goals of our website.

This will look a little different depending on what type of website you have, but the general process of calculating goal value is pretty universal. Below are some examples based on hypothetical scenarios for the most common types of business websites: e-commerce, lead generation, and offline sales websites. Keep in mind that many websites will not be so black and white and may contain many different kinds of goals, but hopefully you can use the methodology below to get an idea of how to go about assigning monetary value to all your website conversion goals.

E-commerce Website
For e-commerce websites the goal is an online order. This is the easiest goal of all to monetize - just take Revenue / Orders which gives you the Average Order Value (AOV). This simple calculation will tell you what your goal is worth.

Example: In the last 3 months my e-commerce website generated 53 orders for total revenue of $8,951 resulting in an AOV of $168.89. So every order is worth $168.89 in revenue.

Lead Generation Website
For lead generation websites the goal is a lead (contact info of a qualified prospect and permission to communicate with them). Whatever you plan to do with a lead once you get one be it a newsletter, a sales pitch, a promotional email, renting it out to a third party, etc. - the end goal in most cases is to somehow use this lead to generate revenue in some way, shape or form. Under that premise the monetization calculation is very similar to the ecommerce formula above: Average Lead Value (ALV) = Lead Revenue / Total Leads.

Example: In the last 3 months my lead generation website generated 600 leads, of which 34 purchased something resulting in total lead revenue of $4,976. Taking this lead revenue divided by the total leads generated ($4,976 / 600) I get an ALV of $8.29. So every lead is worth $8.29 in revenue.

Offline Sales Website
Many websites are designed primarily to get online visitors to visit local brick-and-mortar stores for the actual purchase of a product. In this case the goal of the website is to get a visitor to come to a physical location. The challenge in monetizing this goal isn't in the calculation but in the information gathering. The best way to monetize these offline goals is to get your customers to tell you that they went to the website and then decided to come to the physical store. To accomplish this you could just ask every customer you meet if they have been to your website (not advised) but a better way is to have them indirectly tell you by offering them a printable, promotional coupon to be redeemed in the store. Then just make sure you have a tracking system in place so you can tie these promotional sales back to your website. Once this is accomplished, you can determine the value of a visitor printing the online promotion simply take the revenue from the promotional sales / total number of promotion coupons that were printed.

Example: In the last 3 months my offline sales website had 53 visitors print the promotional in-store coupon which resulted in 12 orders totaling $8,105. Taking this promotional revenue divided by the total promotions printed ($8,105 / 53) I get $152.92. So every time a visitor prints the promotional coupon it is worth $152.92.

Advanced Calculations
The above calculations are essential to you understanding your website goals and what they are worth. The calculations themselves are extremely simple while at the same time extremely useful. In their simplicity though the above calculations do omit two important factors that you might want to factor into the above equations for a more accurate look at what a goal is worth to you:

1. Profit Margin - the above formulas take straight revenue to determine value, but depending on your business it might be more beneficial to you to use profit in place of revenue. This is an easy adjustment to the formulas above as you can just replace Revenue with Profit by multiplying the revenue times your average profit margin.

2. Lifetime Value (LTV) - this is a more advanced topic that really deserves its own blog post(s), but basically the idea of LTV is that your customer is worth more than just the initial order value as the customer is likely to purchase multiple times throughout the customer's lifecycle with your company. In essence the calculation for LTV is LTV = (Average Order Value) * (Average Number of Times Customers Reorder).

3. Lifetime Profit Value (LTPV) - this is a combination of the above two elements and is a very useful piece of information to have especially in accurately determining how much you can profitably spend on customer acquisition. LTPV = (Average Order Value * Profit Margin) * (Average Number of Times Customers Reorder).

So I Know How Much My Goals Are Worth To Me - Now What?
Knowing how much your website conversion goals are worth in dollars and cents is extremely valuable information for you to have for the following reasons:

• Comparing & Prioritizing Multiple Goal Values:
  • If your website has multiple goals, you can use the goal value to prioritize these goals.
  • Designing a website and individual web pages is often a compromise simply because you can only effectively show so much information on a page and a page can only effectively have 1 or 2 calls to action - (any more than that and you've confused your visitor who has now left your website out of frustration and gone to your competitor). So if you have multiple goals competing for your visitor's attention, you now know which goals pull rank over other goals and you can design your pages with these primary goals in mind.

• Cost Per Acquisition (CPA):
  
  • Getting visitors to your website is not always free and easy. When you have a cost associated with driving traffic to your website (email marketing, pay-per-click search marketing, paid directory listing, etc.) it's important to know how much your investing in each paid campaign. The best metric for measuring this is Cost Per Acquisition (CPA), which is simply the cost of the campaign / the number of successful goal completions the campaign generates.
    
    
    • Example: I spent $2,500 last month in PPC marketing to get 3,846 visits to my website which resulted in 86 goal completions, so my CPA is $29.07 ($2,500 / 86).
  • By comparing the Goal Value with the Cost Per Acquisition, you can quickly determine if a specific campaign is worth the investment.
  • CPA is also a great metric for comparing different campaigns to each other apples-to-apples.

Next week in Part 3: Site-Assessment - How is My Website Actually Performing? June 24, 2009, we will go further than merely assigning value to specific goals and look at how to create and interpret Key Performance Indicators (KPI’s) to measure your website’s performance.

Key Takeaway – The key to monetizing a website conversion goal is to start at the end using either revenue or profit and working your way backwards along the conversion funnel attributing portions of the revenue or profit as you go. Knowing the value of your goals is important because it allows you to prioritize multiple goal values and it provides a break-even point for customer acquisition costs (e.g., you wouldn’t spend $100 to get an email signup if an email signup is only worth $50).