Measuring Your Web-Site Profitability
Direct marketers know that virtually everything can be measured. Every media source is coded to trackability. Every list, and different hotlines of the same list, are evaluated and compared against each other. Conversions from prospect to customer are evaluated based on average sale, media type, frequency and recency.
Measuring the effectiveness of the Web should be no different. In the early days of the Web, measurement wasn't often important because most sites were informational in nature and managed by technology people.
But that's changed. Marketers are taking over many functions of an e-commerce Web site, and entrepreneurs and corporations alike have discovered that businesses and consumers will do business on the Web. Every day there are more people globally who have access to the Web.
Tomorrow's penetration of the Web into our culture will be bigger than today's. But with the vast number of sites selling products and services, marketers will have to rely more on using outside media to bring people to their site.
Successful Web owners report that 70 percent of their marketing budget is spent on media outside of the Web to direct prospective customers to their sites. If you're spending thousands, perhaps millions, of dollars to generate inquiries, doesn't it make sense to know which efforts are pulling the highest response?
Opportunity lost. A few days before last Valentine's Day, an ad appeared during ABC's 20/20 featuring a special Valentine's necklace offered by a nationally known jeweler. The ad closed with its dot-com address. It was an easy-to-remember name and easy to later log on with the notion of looking more closely at the item. Like most Web sites, however, this jeweler had no way of knowing who went to its site as a result of the 20/20 ad, and it didn't know the prospective customers by name. This unknown data was a significant loss of marketing opportunity. While some direct marketers - especially in business-to-business - may accept that the largest response source is unknown, it invites inefficiency and wasted marketing dollars.
There is another classical direct marketing technique that should boost the number of people who self-report, and later purchase a compelling offer. The offer may be a free gift, a discount off the first purchase, sweepstakes entry or first notice of special customer sales sent via e-mail. In any event, perhaps the greatest marketing weakness among e-commerce Web sites today is the lack of compelling offers.
As is often said in direct marketing, your success boils down to three elements: your list or audience you target, your creative and your offer. We have recognized for years that about 40 percent of success is due to proper targeting, 20 percent is due to creative, and another 40 percent comes from using the offer. Which of these three do you spend most of your time?
Then there is the question of conversions to sale, usually stated as a percentage of those inquiries who actually purchase. The average order, especially when segmented by average order-by-inquiry source, will reveal where roll-out dollars should be spent. The best indicator of success may be a combination of two key measurements: response rate and average order. By combining these metrics you calculate the sales-per-thousand of your circulation, which may be a more meaningful number for you to use as a benchmark.
Database marketing clearly has its place, too, when marketing on the Web. E-mail, or direct mail, should complement a Web site's marketing program. Like classical database marketing, there is a wealth of data that should be gathered over time to enhance your marketing activities. And if your product or service lends itself to a rewards program, what better place to hook customers than on the Web where the customer comes to you.
Calculating allowable marketing costs. If you are ready to begin a massive campaign to direct prospects to your Web site, you would be wise to calculate an allowable marketing cost. This approach requires that you back into your sales and acceptable marketing cost by creating an allowable marketing cost model. By assuming a certain level of inquiries, conversion percentage and average order size, then backing out costs, the model will reveal the average order, conversion rate and inquiry rate required to meet specific profit requirements. By taking long-term sales, less product or service costs per customer, and backing out fulfillment, overhead and your profit objective, you will have an "allowable marketing cost" per customer. Divided over the cost of your marketing effort, this number will reveal the response rate and conversion rate required to recover costs and meet your profit objectives.
Another measure often used by catalogers is a product sales analysis, which uses square inch or space analysis. This analysis identifies which products are generating sales on a square-inch basis and will help the cataloger identify if an item should have more space allocated, less space or simply be dropped.
The measurement of Web sites has often been treated on a cursory level, or not at all. In the early days of the Web, measurement didn't matter much. It was the fascination with technology that drove Web expansion. But as the media evolves and profitability is expected by investors, the playing field has changed. To manage it, you must measure it. And that's why the marketing metrics of the Web will emerge on center stage in the days to come.
Gary Hennerberg is president of Hennerberg Group Inc., Grapevine, TX. His e-mail address is GaryHennerberg@aol.com.