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on Conversion Rate Optimization

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, few of the initial metrics that they obsess on are: number of pageviews and number of visitors. There is nothing wrong with measuring how many visitors come to your website; it is good metric that gives an illusion that you have everything in control on 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 and optimizing website 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 simply, is a concept borrowed from traditional marketing where they use something called customer lifetime value. The idea goes like this: every customer has a potential to deliver 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 customer life time value.

A similar concept can also be applied to websites. Every visitor who comes to your website holds potential to deliver certain value to you and you should know what that value is. Visitor lifetime value has 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 a signup worth to you? What is a lead worth to you? What is average sale made per visitor?
  • Conversion rate for those goals – out of 100 visitors who visit your website, how many complete goals you have defined. That value is called conversion rate.
  • Visitor retention – on an average, how many visits does a visitor make on 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 extremely poor job if on an average most of your visitors never come back. Have them come back to your website!

Based on these parameters, a simplistic formula can be derived for visitor life time value:

Visitor life time 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 life time value gives you THE best perspective on whether your activities on the website are really worth it. If you aren’t calculating and increasing visitor life time value, you are loosing a lot of opportunity to drive your business ahead.   The metric also attaches a bound to what you should be paying for acquiring visitors through paid advertisements, banner ads or affiliates. You cannot spend more to acquire a visitor more than what you expect to derive from him.

Coming back to measuring number of visitors to your website, I lied when I said it is a worthless activity! If you see visitor life time 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 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 visitor life time value

You must be measuring 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?

Founder and CEO of Wingify.

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