Stop measuring number of pageviews on your website! Measure the right metric: Visitor Lifetime Value
When people install a shiny, new (and possibly free) web analytics tool, a few of the initial metrics that they obsess about are the number of page views and the number of visitors. There is nothing wrong with measuring how many visitors come to your website; it is a good metric that gives the illusion that you have everything in control of your website. If website traffic increases, it is good. If traffic decreases, it is bad. What metric can beat the effectiveness of such a simple heuristic?
The real problem arises when website owners never look beyond these simple metrics. Relying upon and optimizing websites around these metrics is a serious error. What you indeed need to optimize should be something I call visitor lifetime value.
Visitor lifetime value, to put it simply, is a concept borrowed from traditional marketing where they use something called customer lifetime value. The idea goes like this: every customer has the potential to deliver a certain lifetime monetary value (read sales) to your business and a business can only survive if its customer acquisition cost (money spent on acquiring the customer) is less than the customer lifetime value.
A similar concept can also be applied to websites. Every visitor who comes to your website holds the potential to deliver a certain value to you and you should know what that value is. Visitor lifetime value has the following components:
- Goals – what goals you want the visitor to complete; it can be signups, downloads, leads, clicks on ads, or purchases
- Value of those goals – you should put a dollar figure to each of those goals. What is signup worth to you? What is a lead worth to you? What is the average sale made per visitor?
- The conversion rate for those goals – out of 100 visitors who visit your website, how many complete goals you have defined? That value is called the conversion rate.
- Visitor retention – on average, how many visits does a visitor make to your website? Is that value 1, 2, or as large as 5-10? With each additional visit, you get a chance to have the visitor complete your goals and deliver value to your business. You are doing an inferior job if on average most of your visitors never come back. Have them come back to your website!
Based on these parameters, a simple formula can be derived for visitor lifetime value:
Visitor lifetime value = [ (Goal 1 monetary value * Goal 1 conversion rate) +
(Goal 2 monetary value * Goal 2 conversion rate) + …. ] * Visitor Retention Rate
Tracking and optimizing a single metric like visitor lifetime value gives you THE best perspective on whether your website activities are worth it. If you aren’t calculating and increasing visitor lifetime value, you are losing a lot of opportunities to drive your business ahead. The metric also attaches a bond to what you should be paying for acquiring visitors through paid advertisements, banner ads, or affiliates. You cannot spend more to acquire a visitor than what you expect to derive from him.
Coming back to measuring the number of visitors to your website, I lied when I said it is a worthless activity! If you see visitor lifetime value, it is money/sales/business that a single visitor is expected to deliver to your business. Multiply that value by the number of visitors and you get the total website value (in monetary terms).
Total website value = Number of (unique) visitors * Visitor life time value
So, all in all, there are really only two ways to increase total website value:
- Increase the number of visitors to your website
- Increase the visitor lifetime value
You must be measuring the number of visitors already. But ask your web analyst or web analytics tool to calculate visitor lifetime value and total website value for you. Track it, optimize your activities around it, and base your decisions on these values. Because, after all, these are the only values that REALLY matter to your business. Agree?
What are your thoughts on visitor lifetime value? Any additions to the formula? Do you calculate this value for your website?