I’m sure every business owner has become frustrated at one time or another at their website or online campaign regarding the lack of traffic. However, if you drill down into the whole “I need more traffic” scenario, there really is no such thing as a traffic problem, only a math problem. What?! – you may be asking? Yes, the truth is that there are so many great ways to get cheap traffic these days that the more important question should be: What is the “initial value” and “lifetime value” of each of your customers/visitors? The main idea here is that once you establish how much revenue each of your customers/visitors brings you, then you can actually spend any amount of ad dollars on bringing in new traffic as long as the math continues to work in your favor. Let’s look at some specific scenarios below:
The initial value of a customer represents the immediate revenue you earn once any customer or website visitor completes the action you intended. This may be completing a purchase or even just landing on your website (if you earn your money with CMP display ads on your site). For this example, let’s say you are selling a product which nets a profit of $10 per sale and you know your offer converts about 15% of the time. If you created a Facebook ad campaign with a budget of $500 that gets you 500 visitors and your offer converted that 15% then you’d earn $750. Taking into consideration the $500 you spent on the Facebook ads, you will net $250 profit in this scenario. Also, those 500 new visitors sent to your site have an average value of $0.50 each ($250 profit / 500 new visitors). Determining this metric is very powerful because now you know with a fairly high level of certainty how much you can spend to get each visitor to your site on average and still stay profitable.
The X factor to keep in mind with this equation is how targeted your advertising is. The more targeted your audience is, the more predictable and scalable your future campaigns will be. For example, if you have an online shop that sells Chicago Bulls tickets for sold out games (like StubHub.com, etc) and you’ve got your Facebook ads only showing to those Facebook users that have identified interests in their profile that include things like “chicago bulls, derrick rose, michael jordan, bulls super fans, nba, nba jerseys, etc” then you can continue or even increase your ad spend with a high level of certainty that your success rate and averages will continue to be within a small margin of error.
This theory is basically the same as the scenario above with the exception being that the value is not immediately enjoyed. For example, let’s say your initial conversion point is capturing the customer’s or visitor’s email address so you can market to them a few times per month via email. It may take 1, 3, 6, or even 12+ months before you know what the true long-term value is of each customer. A great real-world example of this is how Amazon.com does business. They shock many investors in how entire channels of their business can be millions of dollars in the red each year however continues to show that once they get customers into the system, they have many upsell opportunities which are very profitable. So in Amazon’s case, they will actually lose money on a customer for many months before making a profit and they are comfortable with this because they know the lifetime value of each customer with a high level of certainty.
In conclusion, it is crucial to always be tracking and measuring all cost and benefit aspects of all your campaigns and website conversions. Try calculating the value of each of your customers. If you cannot, that tells you that better measuring practices need to be put in place. Remember, with awesomely cheap traffic these days (Facebook Ads, Twitter Ads, Google Adwords, LinkedIn Ads, etc) there is no such thing as a traffic problem, only a math problem.