Website Revenue Formula

Filed under: Internet Marketing — Brian

In the course of considering web projects, people often ask, “Just how much money can my website make me?” Or possibly, “How much more money will my site generate if I improve it?” These are excellent questions — after all, before we can decide to invest money into our site, or a site redesign, or a SEO program, we have to know the cost/benefit analysis.

Unfortunately, a lot of people seem to say that these questions are unanswerable in any definitive way. “We know that with more quality traffic your sales will go up, but no one can say by how much.” It’s an article of faith.

Well, as a fan of science, and the math that underlies it and defines our universe, I’m not good with people saying things can’t be defined or described in specific terms. Because if a statement is true, then you can model it.

Website Revenue Formula

If you want to know how much money your website can make, the formula is very simple — at least on a macro scale it is. Here is how much money your website will make, on average:

Traffic * Conversion Rate * Ave Sale Amount = Website Revenue

Yeah, now that you see it, it’s pretty obvious right? Math usually is. But there’s a lot we can learn from this formula, and ways to make it increasingly useful to us.

First, our simple formula is the product of three variables. This means that if you can increase any variable — without decreasing others — your website will generate more money. Let’s keep that thought in mind.

Pro Tip: You can even predict your search engine traffic by using the Google Keyword Tool to find the search volume for all the related searches, then predict the percentage of that search traffic you’ll get based on what search engine ranking you think you can achieve. These percentages can be drawn from the AoL Data, the Cornell University Study, or the Optify Study.

Drilling Down Into the Formula

Where things get fun is when we drill down into the formula and take any given variable and break it down into its own formula.

For example, we know that Traffic to our website is a combination of the following:

  • Direct Traffic (typing the URL, opening a bookmark, or clicking on an email)
  • Referral Traffic (clicking a link from elsewhere)
  • Organic Traffic (search engines)
  • Pay per Click Traffic (paid search engine listings or ads)

The value of these component would be represented as the sum of each item. If you increase any one of these, without hurting any other component in the formula, your site will generate more money.

Similarly each one of these can further be broken down — Direct Traffic can encompass email marketing tactics (which further break down into open rates, and list sizes, and click rates), and traditional media marketing. Referral traffic can break down into social media (which can break down into platform), industry directories, PR traffic, guest articles, etc.

This starts to get fun once you make a giant formula of dozens and dozens of different elements, all which contribute to an overall category, and those categories contribute to the base formula.

Making more money from your website isn’t always about increasing your traffic — you can get the same benefits by increasing your conversion rates, or your average sale amount. Perhaps that keyword stuffed text that you think is helping your search engine rankings, and thus increasing your traffic, is actually turning off customers and radically lowering your conversion rate. As we can see in our formula, that conversion rate is equally as important as the traffic.

Personally, I think one of the great things about taking this formula and breaking it down into dozens or hundreds of component variables is that you suddenly can see tiny bite-sized pieces that are easy to work on. And improving any one of them will make you more money.

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