Executives Guide to Web Analytics

Ever wonder exactly what your web department is actually contributing to your companies bottom line? You spend $5000 a month in online marketing initiatives to send 10 000 visitors to your website and receive $7500 in profit from web-based sales. Is your company closer to your goals? In this scenario, you seem to have made a profit but has is this strategy working or do you need to reevaluate?

Ask the person in charge of your web marketing department how their division is doing. You'll most likely get a barrage of statistics about impressions, clickthrough rates, visitor latency, average cpc and on the list will go.

Once they're done talking, then ask them how much they have contributed to the company's goals, whatever they happen to be. Perhaps you have identified a need for reduced customer attrition or stronger cash flow. Does your online marketing person know your company goals, and if they do, do they know how their results impact on those goals? A spreadsheet with hundreds of metrics does very little to tell an executive how online marketing is contributing to the bottom line.

There are two perspectives to take in here. First, the executive must gain a basic grasp of some key web performance metrics. There is no way around it if you really want to understand what goes on over in your marketing teams office. Secondly though, web marketers must learn to effectively communicate what executives need to know without a blizzard of data that has no relevance on decision making processes.

For executives, there are three vital pieces of information you need to know when making decisions on web marketing initiatives. They are:

1. Conversion Rate
2. Cost Per Action
3. Buyer Value

Conversion Rate
A conversion rate is simply a measurement of how many people who visit your website actually proceed to complete a predefined goal. As every business is different, the definition of a conversion will be different as well. However pretty much anything is trackable online these days, so it's simply a matter of deciding what action you want visitors to take.

Some businesses may set an actual purchase as a conversion goal, for others it may be to complete a newsletter sign up, and for yet others it may be requesting more information. Whatever your goal, make sure you and your web marketing people agree on what that goal is and how they are going to measure it. For example, a hotel's website conversion rate would no doubt relate to the visitor completing a reservation.

To put it simply, conversion rate measures how many visitors who come to your site actually do something of significant value to you.

Cost Per Action
Cost per action measures the advertising and marketing costs associated with visitors achieving a conversion. If you only advertise online, this is a simple calculation. Total advertising costs divided by the number of conversions or actions completed.

If you use other forms of advertising like print, radio or television, this may muddy the statistical waters a bit. If your television commercial suggests people visit your website, then it may be difficult to assign a source to these visitors and segment your web traffic. Ideally try to separate these out by sending traditional media referrals to someplace unique, such as www.example.com/tv rather than just www.example.com. By specifying a unique place for those visitors to go you can effectively cut them out and measure them separately.

If that isn't possible, web tracking programs can somewhat segment visitors out based on where they came from, but your results may not be 100% accurate. See the analytics tutorials for more information.

Once again, the marketing and executive team must decide on what action or conversion is important to the company goals. Once complete, the Cost Per Action measurement will very quickly allow you to compare how effective your online campaigns are. If one particular online ad buy generates a very low cost per action, the decision to increase spending on that ad buy is easy to make.

Buyer Value
In the end, this is what most executives are really interested in. How much is a buyer, or for lack of a better term conversion or action completer, worth in dollars of profit. First identify how much a particular action or conversion is worth to you in terms of dollars (gross sale price) on average. So if 100 visitors to your website last month bought a total of $1000 in product, your average action value is $100.

Then factor in your gross profit, not including advertising costs. If your gross profit is an average of 50%, then your buyer value is $50. On average, every person who completes a conversion or action goal is worth $50 to you in profit.

Comparing and Decision Making
You can very quickly compare these three statistics to accurately identify the value of any particular online marketing campaign. The conversion rate will tell you what percentage of people who clicked on that banner actually completed a reservation. The cost per action metric describes how much the advertising cost on a per conversion basis, and the buyer value identifies how you are profiting from those conversions.

For example, if we run a pay-per-click campaign on Google, pay for a banner on a popular website, and send out an advertising email to a list that was bought, which one is most effective?

While the initial conversion rate of the pay-per-click campaign may seem very low, the value of the buyer is quite high, and therefore likely a good investment.

The banner has a decent conversion rate but a relatively low buyer value. This could indicate that the ad is good but the target audience might not have the right spending power. Placing the banner in front of more affluent audiences may result in higher buyer value. Even though the initial buyer value is low, adjusting this campaign may make sense

The email has a very high conversion rate, but an equally high cost per action. The initial budget for this campaign may have seen very high, but the buyer value is tremendous. From an executives point of view, this kind of spending is well worth the initial outlay of cash.

With this information a busy executive can easily determine how effective campaigns are and whether they need to be beefed up, realigned, or dumped.

The Other Side of the Story
E-marketers need to learn what data is relevant and how to present it to executives to assist the decision making process.

Imagine this...the head of a marketing department stands at a meeting to present the latest statistics from the company website. He presents statistics like a 1% clickthrough rate on the banner ad, 10% increase in pageviews, a visitor latency of 15 minutes, and 60/40 ratio split on organic versus ad paid sources.

Very interesting.

If the head of the marketing department keeps this up, likely he or she will get fired. That sounds harsh, but the point is being missed. What's the average lifetime value of a customer? What is the segment growth versus the market segment growth? What share of the consumers wallet do we own? What is our customer loyalty? Is the website improving or negatively effecting the product margin? At what rate are we acquiring new customers versus losing customers?

Web metrics can provide answers to those questions in a definitive way, but the savvy E-marketer needs to present the information that is relevant to the executive team.

Traditional marketing can be very difficult to track without massive consumer surveys. How loyal are people to my brand? In the past we could survey 1000 people and ask them about their impressions of our product, quality, ranking, how often they buy it etc.

Web marketing and analytics can tell us in an instant if a someone is a previous buyer, how often they have bought, the total value of lifetime purchases they have made and much more. The sheer volume of information now available to marketers is overwhelming. Distilling that information down to relevant, actionable metrics can help take your marketing to whole new levels of success.

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