Four Calculations That Determine the Profitability of Online Promotions
How do you discern the monetary value of visitors lured by a promotion to visit your Web site? A good Web site accounting system takes into consideration both associated costs for building and maintaining the site, as well as holding site visitors’ attention, note the authors of “E-metrics: Business metrics for the new economy,” a whitepaper from SPSS, a predictive analytics software and consulting company, and Target Marketing of Santa Barbara, an Internet marketing consulting firm in Santa Barbara, Calif.
“The cost for [Web site promotions] is reconciled over the customer lifecycle starting with the cost of the promotion that got visitors there, through the acquisition phase, and finally to the moment of conversion,” write Matt Cutler and Jim Sterne, the whitepaper’s authors.
Following are four calculations that can help you determine your online promotional costs and results:
Calculation #1: Advertising and promotional costs divided by number of clickthroughs equals customer acquisition cost. This calculation determines the gross value of a promotion during a set time period. Say you spend $25,000 on 1 million banner ad impressions that yield 0.5 percent clickthroughs. The result is 5,000 visits or $5 per user acquired.
Calculation #2: Advertising and promotional costs divided by number of sales equals cost per conversion. Most online marketers use this calculation to discern the best investment of their promotional budgets, note the authors.
Calculation #3: Total online promotional costs divided by total online promotion results equals net yield. This calculation is best used if you’re trying to determine the overall effectiveness of a multistep promotional effort in which incremental costs, such as banner ad testing, are not available. Here’s an example of how to put net yield to use: Say banner ad A gets a high clickthrough rate but few conversions to sales. And banner ad B has a low clickthrough rate, but a high conversion. “Compare the net yields of both campaigns to quickly identify the better-performing banner,” suggest Cutler and Sterne.