What is your ROI (Return on Investment)?

Determining your ROI for all your business expenses is critical. Whether you do business on or offline, things like your labour, your advertising, and your utility costs must be kept in line to remain profitable.

If you advertise in print, radio or TV do you have a system to track accurately where your business comes from, and therefore know if the expense is justified? If you have, I would bet that it is very complicated. Tracking and evaluating your website is more accurate and relatively easy.

Determining the value of your website is based on figuring out the value of a site visitor. This is done by using the statistics that are available from your web stats package, and etablishing conversion rates.


Whatever your goal is for defining a web visitor as a "success", then that's a "conversion". Define for yourself what the "conversion" is that you want to track. How you define that is up to you. If you want to call it a sale, great, that makes it easy. If a phone call or a completed email contact form is your goal, then that's the "conversion". There are some sites who's only goal may be to get traffic, so you're already done. Now you need to determine the rate at which those visitors are "converting".

Define what you want to count as a "conversion" and start keeping track of:

  • Unique visitors
  • Contact forms
  • Phone calls
  • Online sales of product
  • Gross profit

Conversion Rate

Unlike other forms of advertising, your website should have a very accurate statistics program. Forget your page count, "hits", or "page views" or any other stat. You want the UNIQUE VISITOR COUNT for the month. Then, you divide the number of conversions, by the UNIQUE VISITOR COUNT to get the conversion rate.

For example you may have the following figures for 1 month:

  • 1,000 unique visitors
  • 200 contact forms
  • 100 phone calls
  • 30 sales of product
  • Gross profit £1,000.

Each of these statistics can stand on their own, and help you make profitable decisions.

If you have 30 people that bought your product, and had 1,000 unique visitors, then your "conversion rate" for visitors is 30 conversions, divided by 1,000 "unique visitors" , or 3 percent.

To take this further, if you receive 200 emails leading to the sale of 30 products, then your conversion rate for visitors to contact forms is 20% (200 emails, divided by 1,000 unique visitors) and your conversion rate for contact forms to sales is 6.6% (200 contacts divided by 30 sales)

Likewise, If you got 100 phone calls, then the phone call conversion rate for visitors is 10%. (100 phone calls divided by 1,000 unique visitors).

Therefore, if on those 100 phone calls you made 30 sales then the conversion rate for phone calls to sale is 3% (100 phone calls divided by 30 sales) making each phone call worth £10 (£1,000 profit divided by 100 phone calls)

Now lets look at your month profit. If your gross profit was £9,000, then you made £1,000 profit. The end result of those 1000 unique visitors was 200 emails, 100 phone calls, and 30 sales. Therefore, you can make the following conclusions:

If you made £1,000 profit from your website, with 1,000 unique visitors, then each legitimate unique visitor you can get to your site is worth £1 each.

If on those 30 products sold, you made £1,000 profit, then every single one of the sales was worth £33 each.

On those 200 email contacts generated, you made 30 sales, for a total of £1,000 profit, so the value of each email contact form you got was worth £5.

Therefore, with all of the above now in evidence, you can participate in advertising program that generates contact forms for less than £5, or a web visitor for less than £1, and be confident you are getting a good ROI.

This is a bit over simplified, and any high value campaign should be analyzed much more thoroughly, but the essence of the formula doesn't change. Once you know these core numbers, and you know what a web visitor is worth to your company, you can begin to make smart and profitable decisions about how you get them there.

Key Phrase ROI

Now you have a conversion rate, you can even predict future internet advertising campaigns before spending a single penny.

Statistics are available for the amount of searches made on any particular search phrase. Depending on your ranking position on the top page, will depend on the amount of unique visitors you will get.

For instance, if a keyphrase has 3,000 searches per month on average, and you are in the top 5 of the search engines, statistics show you will recieve approximately 15 - 20% of the total searches clicking on your website (450 - 600 unique visitors). Using your conversion rates above,and accounting for the expense involved in the SEO(Search Engine Optimisation) or SEM (Search Engine Marketing) you can quickly establish wether or not the campaign will return a good ROI.

This article has been reproduced with kind permission from Scott Hendison, who is a computer & internet consultant living in Portland Oregon and works with companies all over the world. His website is http://www.pdxtc.com . I have addedd the section on Keyphrase ROI


Copyright - Premier Internet - 2006