If you sell a product or service online, be it an ebook, a course, a WordPress plugin or a consulting package, you need to know how to calculate the value of visitors and customers, as these specific numbers will greatly influence your marketing strategies.
Suppose you have a weight-loss blog, and you sell a weight-loss ebook.
The cost of the ebook is $49, and since it’s a digital product, $49 are also your profits (if you had some costs involved, say shipping, you would need to remove those from the $49 to find your profits).
Once someone purchases your ebook you also offer them a personal counselling package, where you’ll personally assist the customer via email or by phone for 6 months. The cost of this package is $199.
And here are the conversion numbers you tracked over the past few months:
– Out of every 100 people visiting the sales page of your ebook, 2 end up purchasing it.
– Out of every 100 people who purchase the ebook, 5 ask for a refund.
– Out of every 100 people who purchase the ebook, 9 end up purchasing the counselling package as well.
First of all let’s calculate the value per customer, since it’s easier. If you sell a single product, then your value per customer is the price of that product. If you sell more than one product or service then you need to factor the percentage of people who buy each. In our example it would be:
$49 + 0.09 * $199 = $66.91
That’s the average value of each customer. Now let’s calculate the value per visitor to the sales page. We know that out of every 100 visitors, 1.9 end up purchasing and keeping the product (1.9 instead of 2 because 0.1 is the fraction that asks a refund, so 2 * 0.95 = 1.9). So every 100 visitors we have a profit of 1.9 * $66.91 = $127. Now divide that number by 100 and we get the value per visitor of the sales page:
$127 / 100 = $1.27
With this number at hand you’ll be in a much better position to take marketing decisions. For instance, suppose you want to advertise on a certain blog. According to the site owner the banner will send you around 500 visitors, and the cost is $400. Should you buy? Yes you should, because you’ll pay $400 and your expected revenues will be 500 * $1.27 = $635, so you are expecting a profit of $235 in that campaign.
Second, suppose you are selling ads yourself, and you are charging $500 for a banner that delivers 600 clicks monthly to the advertiser. Should you keep selling that ad spot? Probably not, because if you used your own banner instead and pointed it to the sales page of your ebook you could make 600 * $1.27 = $762, which is more that what you are getting from the advertiser (you could always increase the price if you want to keep selling the ad spot).
Bottom line: whenever you sell products or services online, calculate the value per customer and per visitor, and those numbers will help you define your marketing strategies.