I recently had a meeting with a prospective client that led to an interesting conversation on the value of a website. More specifically, what is the value of a website visitor and lead? We worked through some calculations and were able to determine some interesting numbers.
I've started to ask similar questions with all new prospects, and surprisingly I've yet to meet anyone that really has a firm grasp of the value of a website visitor. Most business owners know the value of a customer, but I doubt very few have taken the time to figure out some additional key data as it relates to their web presence.
If you're serious about Inbound Marketing there are some key metrics that you should be aware of.
- Average Lifetime Value (LTV) of a Customer
- Visitor to Lead Conversion Rate: How many website visits do you need to generate a lead?
- Lead to Customer Conversion Rate, i.e. Your Close Rate. (Most people know this number)
- Value of a Website Lead
If you're spending thousands of dollars each month on inbound marketing, don't you think it would be pretty important to know these metrics?
For illustration purposes, I thought it would be interesting to run through some example calculations. You can use these same formulas and your data to see where you stand.
Average Lifetime Value of a CustomerThe average LTV tells you how much a new customer is worth to your company. The calculation is pretty simple. Let's assme every new customer you gain is worth $4,000 per month in recurring revenue, and the average customer stays with you for 3 years (36 months).
- LTV = Average revenue per period * Average lifetime of a customer
- Example: $4,000 per month * 36 months = $144,000 LTV per New Customer
This number should change your thinking a bit. In this case, you're no longer selling a $4,000 per month deal, you're selling to a $144,000 customer.
Taking it a step further. If you acquire 12 new customers per year, you're generating $1,728,000 in new lifetime customer revenue. Not bad eh?
Value of a Website VisitorNext, let's assume that the 12 customers you obtained during that 12 month period all came from the internet (website, social media, email, etc.). I realize you get leads and sales from other sources, so you'll need to factor those out. Here's how to calculate the value of that website visitor
Determine the number of website visitors for your selected time period. In this case, we're using 12 months and we'll assume the total visits to the website were 18,000.
- Website Visitor Value = New Customer Revenue (LTV) / Website VIsitors
- Example: $1,728,000 / 18,000 visits = $96 per visit
That's it. Every website visit in this example is worth $96. Surprised?
Improve Conversions, Improve Your Bottom LineLet's take it a step further. You now know that every website visitor is worth $96, but what if you could improve that number to $150?
In order to do that we need to calculate a few more numbers. First, we need to determine your Visit-to-Lead Conversion rate, i.e. what percentage of website visitors turn into a lead?
- Visit to Lead Conversion = Website Leads / Website Visits
- Example: 450 leads (over 12 months) / 18,000 visits = 2.5% Visit-to-Lead Conversion Rate
Now, let's look at the Lead-to Sales Conversion rate, i.e. the percentage of leads it takes to get one sale. Using our same numbers, let's say those 450 leads resulted in 12 new customers.
- Lead-to-Sales Conversion = New Customer Sales / Website Leads
- Example: 12 new customers / 450 website leads = 2.67% Lead-to-Sales Conversion Rate
Now you can talk to your sales team about improving the rate they close those internet leads you're working so hard to generate.
One Final Point - It's all about the ROI
Now that we know the true value of a customer, we can determine whether or not we're getting a good return on our investment in inbound marketing. For this example, let's assume your total Inbound Marketing monthly spend is $7,500, or $90,000 per year.
- Inbound Marketing ROI = New Customer Revenue / Inbound Marketing Spend
- Example: $1,728,000 / $90,000 = 19.2 ROI - I'll take an ROI like that all day long and twice on Sunday!
So, what do you think? I would encourage you to run some numbers on your own using a number of different time periods. If you need help, feel free to give us a call at (864) 288-6162.