In our last post we discussed calculating value-per-visitor. This calculation is fairly straightforward when it comes to “front end” money to your website. However, when you start dealing with “back end” money, such as revenue from your opt-in email list, things get a touch more tricky.

Essential to this discussion is the concept of “discounting the future”. It’s an economic concept based on the idea that a dollar in your pocket today is worth more than a dollar you might receive a year from now, due to inflation.

Let’s say you have an email list of size 100, and that your average conversion rate is 3%. That gives you an average of 3 sales per offering. If you present 2 offerings per month than that means you should be averaging about 6 sales per month.

If your average revenue per sale was $50, then 6 sales per month would gross you $300 per month. If we divide this $300 by 100 leads we get an average value per visitor of $3 per lead / per month.

The question is, what if we wanted to calculate not the value of a lead per-month, but its total value to our business? Such a calculation becomes a bit of a “fuzzy” for several reasons.

The first thing we would like to know in order to perform such a calculation would be how long, on average, a subscriber stays “active” on our list. Let’s say, for our example that we know this figure to be one year.

The issue is that we cannot simply multiply our ($3 per lead / per month) by 12 months since we know that each and every month our dollars are loosing value.

To make matters worse it’s a little tricky to figure out the average length of time that a user stays “active” on your list. The obvious way that that a user would cease being active is if they unsubscribed, however this is not the only way that a lead can fall into the “inactive” category.

Leads can go “stale” in a number of different ways. For instance, as a user opts-in for more and more lists they may decide to create a new email account and keep their old account active as a kind of junk mail account. Another way for a lead to go stale is when email providers tweak their spam filtering software, causing emails that used to get delivered with ease to take an unwelcomed detour to the spam folder.

Perhaps the worst way for a lead to go stale is when a subscriber does not bother to unsubscribe but just stops paying attention to your broadcasts.

It is valuable to calculate your total value per visitor, including both your front end and back end value. Knowing the cumulative figure is especially important if you are trying to figure out your “break even” price when paying for Pay-Per-Click Advertising.

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This entry was posted on Friday, June 20th, 2008 at 8:15 pm by Phil Weslow and is filed under Email Marketing, Lead Generation, Affiliate Marketing, Pay Per-Click. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.