April 14, 2009

Web Analytics: The Value Of A Website Visitor

Companies that analyze longitudinal website behavior know that a purchase happens after a series of website visits. For many, a website purchase happens after, say, four visits.

But that's not how we measure things, is it? We try our hardest to allocate orders to the advertising vehicle that caused the order, seldom considering a series of events.

For instance, take paid search as an example. Assume that a paid search campaign results in a 3% conversion rate and a $100 AOV. We run a profit and loss statement on the 0.03 * 100 = $3.00 demand generated by the campaign, factoring in the cost of the campaign.

But what about the 97% of visitors who did not purchase?

What if you had this data?

  • Of those who are left, 50% will visit the website again within one week, with 3% converting, spending $100 each.
  • Of those who are left, 50% will not visit again. Those who are left will visit again within three weeks, with 3% converting, spending $100 each.
  • Of those who are left, 50% will not visit again. Those who are left will visit again within one month, with 3% converting, spending $100 each.
  • Of those who are left, 50% will not visit again. Those who are left will visit again within four months, with 3% converting, spending $100 each.
  • Of those who are left, 50% will not visit again. Those who are left will visit again within six months, with 3% converting, spending $100 each.
There is value in each case, value that most of us choose not to measure.

When I iterate through the five cases above, I calculate an additional $2.75 of future visitor value.

In other words, we measure the $3.00 generated by short-term conversion. We don't always measure the $2.75 of future conversions.

Now there may be additional expenses associated with the $2.75 number --- that customer might require additional paid search expense or might use a shopping comparison site, whatever. So we need to run a true profit and loss statement on the additional $2.75 generated by future visits.

If each first-time visitor (one that doesn't convert immediately) is worth $0.30 profit over the next twelve months, you think differently about attracting visitors, don't you? Now you're ready to experiment, like the folks at Drugstore.com and Zappos recently experimented.

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