The value of your marketing efforts

Tracking things is important!  As I was meeting with a client last week and explaining to him a way to value each lead it dawned on me that my accounting degree is actually incredibly helpful for digital marketing.  If you can find out the value of each visit, click, and action, then you can easily decide how much it’s worth to pay for that action.

Let’s go over a quick formula to help you find the value of your marketing efforts.

Value of each event

This formula is pretty simple in practice but there are a few different ways you can do it.  For this example we’re going to try and track visitors.  We’ll start simply with profit / visitors, where the item can be anything from a product or a large contract.  So if we are receiving $200,000 profit in a time period and we have 50,000 visitors, then the value of each visitor is $4.

So, why is this important?  Because it means if every visitor is worth $4, then you can safely spend $3.99 for each visitor!  Most of the time I tell a client this, they’re like…but then I only make $.01 per visitor!  While this is true, with the numbers this formula is giving us we can spend $3.99 a billion times and still make $.01 per visitor.  I’ll take a billion pennies any day.  Of course it’s not likely that you’ll have a billion visitors and so you need to keep checking this formula and following the value of each customer and spending accordingly.

Moral:  Check the numbers from this formula often.  The more it’s used, the more accurately you’ll be able to find the value of your marketing.

Not all visitors are created equalvalue_of_sources

It’s VERY important to note that the above formula is super broad and really should not be implemented without being more specific.  Let’s look at the above picture taken from Google Analytics and make some assumptions.  We’ll assume that $57,069 is our profit (ha).  With these numbers, we can easily see that the value of each session is $3.50 (57069 / 16312).  That means it’s an okay idea to spend $3.49 or less on advertising to secure a session, right?

Probably not.  Look at the facebook referrals and assume they are actually ads.  For this segment, for each facebook visitor is only worth $2.41.  If we don’t look at the individual segments and know what is driving each, then we could be making a very bad error.  Paying over $2.40 per facebook visitor will result in a lot of pain as long as these numbers hold true.

For things that drive organic, google traffic (blogging or whatever magic you are doing) it’s worth it to spend $3.48 for each increased visitor.  There are a lot of other metrics for this that you can and should track (you set up goals already, right?), like how many visitors each blog post brings in and how many of them are converting to sales but with that simple formula, profit / #ofevents, you can really get a better feel of what is okay to spend on marketing.

Worthy mentions

It’s also worth mentioning that profit has several definitions.  The easiest way to track it is profit per item or profit per contract or whatever.  But you really should also take into account overhead into this as well.  Rent and other fixed costs should be accounted for to make sure you are using an accurate number for profit.  When in doubt, be conservative.  You don’t want to find out that you’ve been spending too much on marketing and that each visitor has actually been a loss.

Have some cool tricks to track and evaluate the value of your customers?  Please feel free to mention them in the comments below!

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Category: accounting, digital marketing, tracking values, valuation

- July 8, 2015

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