There’s no denying it: Conversion Rate improvements are great, but at the end of the day, data is nothing more than a bunch of numbers, while cash is something you can take to the bank! And more importantly, if you’re the Marketing Department, dollars are something you can take to the CEO and other decision-makers at your company to maintain buy-in for your Conversion Rate Optimization (CRO) efforts and spending requests. That’s why it’s important to always tie your CR improvements to an estimated increase in revenue.
E-commerce sites always have the “average order value” metric on hand. Analytics tools like Google Analytics track and report Average Order Value, Transactions, and Revenue directly (caveat: extra coding/tagging is involved), saving you the effort of having to do any number crunching to arrive at it. This makes estimating a revenue increase a matter of multiplying average order value by the increase in number of transactions.
If you are a lead generation site, you probably already know that Google doesn’t calculate an average lead value metric. Hence, the lead generation clients we start work with often haven’t made the effort to tie a monetary value to each lead. But, calculating an Average Lead Value from the data in Analytics is easier than you may realize, making it possible for Lead Generation sites to tie improvements to revenue, and demonstrate ROI on optimization efforts.
We’re working with a client who is new to testing and optimization. They realized some nearly immediate gains in their conversion rate and other metrics from the first few tests and changes we recommended through our OnTarget optimization system. Naturally, we wanted to help the client tie those gains to monetary increases they experienced as a result of our work together. So, we requested their “lead value.” When they didn’t respond immediately with an estimated dollar amount, we realized that this was not something they had readily available.
Let’s take a look at steps we took together to get to the bottom line…
First, it is important to understand that any key performance indicator (KPI) represents a tangible action your visitors take that overlaps with a particular goal for your business, and to understand how that action relates to your bottom line. For Lead Generation sites, the primary KPI is a lead acquisition, but that is not a guarantee of revenue, since it is only the first step of a two-part sale (the second step is to close the sale). Further complicating the matter is the fact that becoming a lead can be the result of a variety of actions, even within the scope of one website: signing up for a newsletter; submitting a request for more information; filing an application, etc.
With that in mind, the first thing we did with the client was to define the variety of ways that someone could become a lead, and to make sure we were tracking those actions properly. Then, we discussed how that action was related to the goals of the company. Average Lead Value represents the average monetary value you derive each time a visitor takes the desired action(s) on your website and becomes a lead. It already accounts for the percentage of leads who then go on to purchase from you. What you are aiming to estimate is the average lead value to plug into your analytics program and for calculating the ROI of any optimization efforts.
Next, we asked the client to gather the data they would need to do the calculation. Fortunately, the client was already collecting the information we requested. If you are not already collecting this information, you will need to start tracking the items for a period of time, and then make the calculation. The numbers you need are:
Make sure you measure each value over the same time frame. The period you use to calculate can vary – 1 month, 1 quarter, 1 year – as long as it’s the same for each metric you use in your calculation. It’s best to average the longest period of data possible to avoid seasonal fluctuations, good/bad months, etc.
To calculate the “Average Lead Value,” divide the amount of sales that occurred within a particular time frame by the number of leads generated during that same time frame. Finally, multiply the result by the average percentage of profit you make each time you make a sale.
For our client, the numbers looked like this: $3,125,000 dollars per month/500 leads per month) x 4% profit = $250 dollars profit per lead.
As a marketer, there are a multitude of reasons why determining Average Lead Value is important. According to our friends at ROI Revolution, 38% of Google Analytics reports for a lead generation site use the financial information of estimated goal values! Here are a few of the valuable ways you can use Average Lead Value:
Knowledge is power. Knowing your Average Lead Value facilitates evaluating the effort (or money) you’ve invested in a specific task and calculating if this is an effort you want to continue with. Comparing Lead Value month over month or year over year can give you a benchmark of health to work off of and see the progress that you’ve made (or the potential for progress), or even ground you may have lost. I can think of nothing more important than understanding your own metrics, especially when working with other specialists.
Are you already calculating your Average Lead Value and using it to monitor your marketing efforts? Do you have uses for this important metric that you’d like to add to our list? Let us know! Or, are you struggling to do the calculation, and to know what to do with it? Reach out today and find out how we can help »