Estimating the true value of a web visitor

Marketers are still grappling with finding the real value of digital marketing efforts. At the end of a promotional campaign, marketers find even the most “trackable” of web visits difficult to value. If we didn’t know this already, a survey of chief marketing officers, conducted by Atlanta’s Heidrick & Struggles, clarified the problem.

Kevin Hillstrom, author of Multichannel Forensics, suggests a reasonable way to approach web campaign valuation. It works well for e-commerce site visits, and even sheds light on valuing other types of visitors.

Placing value on non-buying visitors

Start the valuation process with the obvious: Visitors who immediately convert to a sale. But then keep going. Apply common sense numbers to those visitors who do not immediately buy. And why not? Visitors may come back two, three or more times before making a purchase. Like a fish that nibbles before biting, these “lost” visits aren’t so lost after all. They should be fairly depreciated, not totally ignored.

Here’s what Kevin says about ignoring all but the “one-visit” purchasers:

We try our hardest to allocate orders to the advertising vehicle that caused the order, seldom considering a series of events.

Take paid search as an example. Assume that a paid search campaign results in a 3% conversion rate and a $100 AOV [Average Order Value]. 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.

What about the 97% of visitors who did not purchase?

Hillstrom asks, “What if you had this data?”:

  • Of those who are left [i.e., 97% of the base], 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.

He goes on to explain:

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. [I get $2.68 in my number-crunching, as the number in the lower right of the graphic shows. Here’s my math in a Google Spreadsheet.]

Value of a Site Visitor Assuming $100 AOVIn 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?

I agree. The BrandWeek article I linked to in the first paragraph said that the CMOs surveyed, “Expressed an awareness of digital’s potential, along with a recognition that they weren’t close to tapping it.”

Building sales models that take into account the messy realities of online behavior is one way we can start.

Focus on customers to survive in this economic downturn

Gartner Research recently posted six strategic customer-focused areas for survival in this economic downturn. In a nutshell they focus on automating your way through these hard times. Each of the six acknowledge there will be many growth opportunities arising from the dramatic changes taking place right now.

The challenge their report emphasizes: To find customer- and sales-focuses areas to cut costs and reinvest wisely.

Of the six, three are revenue-generating. Here they are, with a brief explanation of why they were included and what sort of immediate ROI might be expected:

1. Customer Retention Management

Gartner contends that holding onto customers who have a high value — or the promise of high value — is “Essential in difficult economic times.” The firm recommends calculating customer profitability / value and creating retention programs customized to each segment’s needs.

Common sense, right? But the vast majority of businesses are still light years away from calculating customer value — let alone devising ways to retain them!

It was Peppers and Rodgers, of The One-To-One Future fame, who most famously wrote about a business’s #1 asset as being its customers. That book was written in the early 1990s, yet the  systematic protection and “mining” of valued customers is still rare — so rare, in fact, that it still inspires whole books about those who dare to do it  well. (I’m thinking here of the book describing the astounding success of Harrah’s).

Gartner projects that in 2009, “Companies that develop effective retention management processes will reduce churn of profitable customers by at least 10 percent within six months.”

That’s a substantial bump. If your best customers follow the 80 / 20 Rule (that 20% of customers account for 80% of your profits), then this 10% reduction in churn of those best customers will mean — assuming every other rate is unchanged — an 8% increase in gross profits. That’s not chump change.

One proviso: By gross profits, I mean the money you get to keep after you’ve set up your retention methodology. These efforts aren’t free. But if you approach the process prudently, you’ll be gleaning far more profits from your existing customers, and feeling less strain to replace “churned” customers via ever-more-expensive acquisition tactics.

2. Lead Management

Speaking of customer acquisition, Gartner next recommends that marketing departments become more involved in the lead management process. By doing so, “Companies can improve lead quality and ensure higher conversion rates.” How do they define this expanded role? Here are two examples:

  1. Leveraging marketing insights — They advise using marketing data that the sales function may not be privy to augment leads before their sent through the sales pipeline
  2. Leveraging content — Helping the sales force use product information that’s already available to identify prospect needs early, and improve the impact of each sales contact

Companies that automate lead management processes this year will increase revenue by another 10% — all, “Within six to nine months, despite the uncertain economy,” reports Gartner.

3. Online Marketing

Interactive marketing isn’t a panacea. But it is a more cost-effective — and measurable — way to reach customers than traditional techniques. Here, Gartner claims that companies who, “Identify and prioritize three to four online marketing initiatives and measure marketing ROI,” will drive another 10% increase in revenue within six months.

I would be more skeptical of this projection if I haven’t seen it at work personally. Online business-building efforts have a surprisingly fast break-even when they’re done carefully. I see this payback being even greater today than a year ago, in a more hyper-competitive marketplace.

By that I mean we’ll soon be seeing an environment where only the fittest survive. The battle for limited business will shake things out quickly. That means very shortly, those who aggressively reach out for new business will find fewer hands fighting to grab it.

But that comes at some risk. More customer-focused investments need to be made starting today.

Life and Death in the Tar Pit

It’s appropriate that on this, the 200th birthday of Charles Darwin, we take a moment to ask ourselves how we are going to ensure that our businesses are not one of the losers in this heated battle for survival. Gartner’s report highlights constructive areas for the investment of scarce marketing dollars to ensure we come out winners in our category.

Does giving away your book, ala DRM-free music, make business sense?

When avant-garde rock band Radiohead posted their latest album online, they invited fans to pay whatever price they thought was appropriate — or even pay nothing at all. More recently, bluesy Brit Joss Stone went on record as saying she thought “piracy” of her music was just dandy. She implies that the freely shared music is growing box office sales of her live shows. These and other examples from the recording industry suggest a business model where your chief intellectual product can be given away — or shared at a huge discount — to the overall benefit of your bottom line. One could even go so far as suggest that digital rights management (DRM) protection does more economic harm than good.

Okay, but does this model hold water if you’re a niche business writer, speaker and consultant?

Kevin HillstromMy blogging friend Kevin Hillstrom reports that it seems to, if viewed holistically. And especially since his book is called Multichannel Secrets, you’d better believe Kevin views things holistically!

Joss Stone more or less admitted in her interview that, taken as a single tactic (my word, not hers), giving away music helps create buzz. It doesn’t help pay the bills. But this buzz is supporting her live shows. She is, in essence, a multi-channel business, and one channel is benefiting from the loss-leader status of the other.

Similarly, Kevin — who is the president of MineThatData — mentions in his blog that his pre-release book giveaway was not a profitable move. He reports at one point that he gave away twice as many books as he sold. But he emphasizes that as a “‘micro-channel’ strategy to running my business,” the giveaway concept makes good economic sense.

If you’re a self-publisher, you’ve probably already considered the strategy of giving out free advance copies. But Kevin can still help you, with his well-framed case for emulating Radiohead. Rock on, Kevin!

Financial services marketers lean heavily on direct response and email tactics

A new report by the Direct Marketing Association reveals that marketers in the financial services sector are relying heavily on direct marketing and email, and showing an impressive ROI for these tactics. Here are two particularly impressive findings from this research of U.S. banks and credit institutions:

  • They invested $13.4 billion in direct marketing advertising, which produced $178.8 billion in sales, or $13.34 returned for every dollar spent
  • Growth in email marketing within financial services companies is expected to be the greatest of all media types used in the next four years, for a compound annual growth of 22.5%

The report also showed a very small reduction in print advertising over the next four years.

What can account for this? Aside from the arguably better overall effectiveness of these media, they are also tactics more suitable to centralized control. As financial institutions continue to consolidate, these tactics become even more appealing.

Survey of marketing tech types finds ROI strongest for search and internal email tactics

A recent survey has shed light on what one breed of marketing professionals are perceiving as good bets in terms of measurable return on investment (ROI). The tactic leading the pack is email, sent to an internal — or “house” — list. This is hardly surprising, since it is a relatively low-cost way to announce new products and deals to customers and prospects. What is more interested is seeing how both organic search marketing (i.e., search engine optimization) and pay-per-click (PPC) search marketing are viewed by these same executives compared to other tactics. Here is the full run-down:

Perceived ROI by tactic, from 3,000+ search marketing pros

Considering the search-centric executives surveyed (these were 3,186 “in-house search marketers or agency executives,” as reported in‘s ROI for Select Marketing Tactics according to US Search Marketers), it’s not surprising both are regarded highly. Both are deemed as “Good” investments in respect to the return they typically provide by one out of every three respondents, and another third (34% total) considered one of these two tactics “Strongest” in terms of ROI.

This would be a glowing assessment of search when compared with other tactics, if only PPC weren’t also deemed as “highly variable” by 28% of respondents. Considering how much control one has on the risks and rewards of PPC, this makes me wonder if that measurement isn’t the voice of a minority who either hasn’t conducted a PPC campaign or hasn’t done it properly.

The booby prize goes to online advertising (“banners, etc.”), deemed “Low Value” by 43% of the group. With opinions of online ads being this negative, is it any wonder ad networks are scrambling to sweeten the kitty with more behaviorally-focused targeting?

What is your response to these numbers?