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It's A Numbers Game

by John Taylor
16 replies
I wonder how many warriors really understand the metrics behind
their businesses.

Let me give you an example..

Let's say you promote someone else's product as an affiliate and
you earn a 50% commission on a product which sells for $67.00.

The sales conversion rate for the traffic that you are sending to
the merchants sales letter is converting at 3.6% and that translates
into an income of $1.20 for each visitor that you send to the site.
The equation is: ($67 x 50% x 3.60)/100= $1.206

Now, if you are using paid traffic, you know that to make a profit
you need to spend less than $1.20 per visitor.

Let's say you are using an advertising network and you are paying
$13.50 per 1,000 impressions and you are getting a 1.3% click
through rate. Your actual cost per visitor is $1.04.
The maths: $13.50/(1,000 x 0.013)= $1.0385

Great! You are making a profit of $0.16 per visitor.

Just how profitable are your promotional efforts?

More importantly, do you know?

John
#game #numbers
  • Profile picture of the author JayXtreme
    Originally Posted by John Taylor View Post

    I wonder how many warriors really understand the metrics behind
    their businesses.

    Let me give you an example..

    Let's say you promote someone else's product as an affiliate and
    you earn a 50% commission on a product which sells for $67.00.

    The sales conversion rate for the traffic that you are sending to
    the merchants sales letter is converting at 3.6% and that translates
    into an income of $1.20 for each visitor that you send to the site.
    The equation is: ($67 x 50% x 3.60)/100= $1.206

    Now, if you are using paid traffic, you know that to make a profit
    you need to spend less than $1.20 per visitor.

    Let's say you are using an advertising network and you are paying
    $13.50 per 1,000 impressions and you are getting a 1.3% click
    through rate. Your actual cost per visitor is $1.04.
    The maths: $13.50/(1,000 x 0.013)= $1.0385

    Great! You are making a profit of $0.16 per visitor.

    Just how profitable are your promotional efforts?

    More importantly, do you know?

    John
    It is VERY much a numbers game...

    And you're so right John.. I think the problem for most people comes from the fact that they "stumble" into the industry with no real business education at all..

    So metrics are overlooked... and to me it is the most important element..

    If you don't know your metrics.. you don't know your business, period.

    If I buy a notepad... I keep the receipt..

    I know each and every penny that goes in and out of my business on a a daily basis...

    I'm no scrooge, it's business metrics 101... keep a track of EVERYTHING, otherwise.. how on earth are you gonna know what to change if you hit a blip?....

    The most common issue I see with metrics is people "trying" PPC...

    They have some good weeks of sales without proper tracking, and then when the sales dry up a little, the profit vanishes.. they cry foul and conspiracy.. when really, at least 80% of the keywords they were using were actually losing them money in the first place..

    If they had monitored properly and kept track of their metrics.. they would have killed the dead keywords early on and remained in profit during the seasonal changes that caused the drop in sales...

    Great, insightful post John

    Jay
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    Bare Murkage.........

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  • Profile picture of the author Chipt
    Hey, John -

    In my experience, loads of marketers either...

    1. Have no clue how to calc their metrics

    2. Don't know where to start

    3. Do basically little or nothing

    4. Have no idea that all traffic sources... uniques and repeats... visitors and buyers... cold leads and JV leads... all convert differently and all have different visitor values and ROIs

    5. Don't consider the differences in traffic and sales metrics and don't know how to calc them...

    6. And they don't have a clue how to predict latency, relevancy, customer defections points, and the higher math metrics...

    It is indeed part art and part science [math,] but few people in my experience even know where to start. This is why I developed a metrics program awhile back that I kept for myself and shared with a few others who asked for it.

    Chip Tarver

    PS -- Metrics are the core of ROI... and marketers should do whatever it takes to learn, analyze, and implement this important aspect of every business whether online or off...
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    • Profile picture of the author Steven Wagenheim
      John, thanks for a very important post. As a cheap SOB, I don't need to
      worry so much about this as almost all my advertising is free, but when I do
      use paid advertising, I even do estimates beforehand to see how much I
      think my profit is going to be. If you have a product that has been out
      there for a while and know the conversion rate, this is easy to do. You
      just plug in the cost per click that you expect (easy if you're using Adwords)
      into your formula and you can get a very good idea if even starting an
      Adwords campaign is going to be profitable.

      Great stuff John. Thanks.

      I'd give you some rep but they done gone and threw it out with the bath
      water, the baby and the dish washer.
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      • Profile picture of the author John Taylor
        Originally Posted by Steven Wagenheim View Post

        I don't need to
        worry so much about this as almost all my advertising is free
        Steven,

        No, your advertising isn't free at all. Unless you don't place any
        value on your time.

        Even free advertising methods have a cost in time.

        I think you would learn a great deal if you calculated just how
        much an hour you are really earning from each of your advertising
        activities.

        You may be surprised.

        John
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        • Profile picture of the author JayXtreme
          Originally Posted by John Taylor View Post

          Even free advertising methods have a cost in time.
          BANG!!!!...

          I wish more people could see this

          Jay
          Signature

          Bare Murkage.........

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        • Profile picture of the author Steven Wagenheim
          Originally Posted by John Taylor View Post

          Steven,

          No, your advertising isn't free at all. Unless you don't place any
          value on your time.

          Even free advertising methods have a cost in time.

          I think you would learn a great deal if you calculated just how
          much an hour you are really earning from each of your advertising
          activities.

          You may be surprised.

          John
          John, you bring up a very good and interesting point.

          What is our time worth to us?

          When I was working my last job before going into IM, I was making $25
          per hour.

          Now, it takes me 15 minutes to write and submit one article. So my cost
          per article, if we're going to take into consideration that my time is worth
          $25 per hour, is $6 and change.

          Going to my stats, I average 1.7 sales per each article submitted, if my
          tracking is accurate, which I think it is.

          My average sale, taking into consideration all the products I promote
          through article marketing (price range $17 to $297) is $42.87 per sale
          since I've been doing this.

          So my average article brings me in (hold on, gotta get my calculator)
          $72.88. So my cost per article is a little over $6 and my income per
          article is $72.88. That's over 12 times the cost as far as income.

          So yeah, I'm working a lot of hours, but at a value of $25 per hour worked
          I'm still making out very well.

          But let's say you wanted to say that my time was worth $100 per hour,
          though I don't see me making that kind of money outside of IM, that's
          still only a cost per article of $25. That's still a profit of $47.88 per each
          article written and submitted, which is almost double my cost or 91%
          ROI over cost.

          I still think that's pretty darn good.

          Now, having said that, would I rather be out on the beach or in the
          recording studio than writing articles all day? Of course I would. But I
          have yet to figure out, and I freely admit this, how to really take
          advantage of paid advertising the way I can free. I'm just not that good at
          it. The few Adwords campaigns I have running generate small sums for
          me and the ROI is only about 50% over cost, and only because it's in
          non IM niches.

          Am I open to having somebody mentor me to use paid promotion to its
          full advantage? Yes, but not at the thousands of dollars it's going to cost
          me with no guarantee that the return on my investment is going to be
          there.

          Does that make me cheap? Yes, and I freely admit that too. But when
          you've got a daughter in college at $35,000 a semester, you can't go
          throwing around your money unless you're damn sure it's going to pay off.

          Now if somebody wants to walk me through setting up an Adwords
          campaign for nothing (not likely, and I'd never expect it) then yeah, I'm
          all for working less hours.

          I know you don't understand my mindset and don't agree with it, but at
          least now you know where I'm coming from and why.

          I got a good thing here. I spend $300 a month total on all my advertising
          (mostly with FFA sites) and I'm earning $10,000 a month, more or less,
          on a consistent basis.

          I really can't complain.
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          • Profile picture of the author Ryan_Taylor
            Hey John,

            Great points. Some things I think people also forget to consider is the quality of traffic you're sending. Traffic that is properly pre-sold is going to have a higher conversion than a "I just tricked you into clicking here" link.

            It's not just the quantity of traffic, but quality as well. Right?
            Signature

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          • Profile picture of the author ExRat
            Hi Steven,

            Was just looking at your sums -

            Now, it takes me 15 minutes to write and submit one article.
            So my average article brings me in (hold on, gotta get my calculator)
            $72.88.
            Therefore, if you only worked for 8 solid hours and only wrote articles, you would earn -

            4 x 8 x $72.88 = $2332 per day

            = $72296 per month

            = $851180 per year

            Upper class bum marketing!

            Work overtime for a couple of months and you'd be a millionaire!

            If you keep going on about adwords I might bite the bullet and teach you one day but I KNOW that you just wouldn't like it and would refuse to use it.

            The objection I often see is that 'people can easily lose loads of money' - well it's virtually impossible if you sit and stare at the screen and keep your eye on it and set your budget low. It's like saying 'if you drive a Ferrari you have to drive fast.' Not if you leave it in first gear and just tickle the accelerator you don't - same thing.

            Keep pushing for that million mate
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            Roger Davis
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            • Profile picture of the author Steven Wagenheim
              Originally Posted by ExRat View Post

              Hi Steven,

              Was just looking at your sums -

              Therefore, if you only worked for 8 solid hours and only wrote articles, you would earn -

              4 x 8 x $72.88 = $2332 per day

              = $72296 per month

              = $851180 per year

              Upper class bum marketing!

              Work overtime for a couple of months and you'd be a millionaire!

              If you keep going on about adwords I might bite the bullet and teach you one day but I KNOW that you just wouldn't like it and would refuse to use it.

              The objection I often see is that 'people can easily lose loads of money' - well it's virtually impossible if you sit and stare at the screen and keep your eye on it and set your budget low. It's like saying 'if you drive a Ferrari you have to drive fast.' Not if you leave it in first gear and just tickle the accelerator you don't - same thing.

              Keep pushing for that million mate

              Roger, you're wrong. I would use it. You are one of the few people here
              who I really trust. If you tell me to do something, I'll do it. I'm not afraid
              of doing things. I just don't want to do them when I don't know what I'm
              doing. That's just bad business.

              Oh and as far as the full time article writing, I'd be burnt out in a week.
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          • Profile picture of the author Zeus66
            Originally Posted by Steven Wagenheim View Post

            ...my average article brings me in (hold on, gotta get my calculator)
            $72.88. So my cost per article is a little over $6 and my income per
            article is $72.88.
            My friend, if I netted almost $67 per 15-minute article, I can promise you I'd do nothing but write and submit articles all day every day. I'd have someone set up an IV drip of nutrients and stick a bedpan under my office chair and stuff No-Doz in my drooling kisser every few hours. GUARANTEED! I'd do that for a couple months, then take the rest of the year off. And still make a very nice income. Seriously, do you realize the goldmine you're sitting on?

            And $35,000 per semester to get your daughter educated? PEANUTS for a guy making $268/hour. That's only about one month of 45-hour weeks, man.

            ARGH!!!!!!!!
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            • Profile picture of the author pwebbiz
              Sorry to step away from discuss Steve's income and back to the matter at hands

              Once you realize that IM is just a numbers game you learn why working to promote CPA by PPC is so simple.

              If I'm paying $.40 / click and 1:5 people are signing up for the CPA offer I'm paying $2 per "conversion" as I call them (not sure if that's the most accurate term, but I think it makes sense.) If the CPA offer pays, oh say $2.25 then you're making $.25 per 'conversion.' Why I like using CPA as an example is because the offers are usually FREE. Free will often (not always) have better conversion than a paid offer so you start seeing money quicker.
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          • Profile picture of the author Lance K
            Originally Posted by Steven Wagenheim View Post

            Does that make me cheap? Yes, and I freely admit that too. But when
            you've got a daughter in college at $35,000 a semester, you can't go
            throwing around your money unless you're damn sure it's going to pay off.
            Tell me I'm not the only one who sees the irony in that.
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            "You can have everything in life you want if you will just help enough other people get what they want."
            ~ Zig Ziglar
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      • Profile picture of the author Mers Dalangin
        I know it John. I know several business man here in our country and that every cent is counted. Imagine having a million cents of loss it means you lost $10K, isn't it right? I a'm not right then the problem is still a number. Even in a pricing a product, creating membership sites, creating templates, researching keywords and testing is a number game. Regards..
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  • Profile picture of the author Chris Hunter
    Originally Posted by John Taylor View Post

    I wonder how many warriors really understand the metrics behind
    their businesses.

    Let me give you an example..

    Let's say you promote someone else's product as an affiliate and
    you earn a 50% commission on a product which sells for $67.00.

    The sales conversion rate for the traffic that you are sending to
    the merchants sales letter is converting at 3.6% and that translates
    into an income of $1.20 for each visitor that you send to the site.
    The equation is: ($67 x 50% x 3.60)/100= $1.206

    Now, if you are using paid traffic, you know that to make a profit
    you need to spend less than $1.20 per visitor.

    Let's say you are using an advertising network and you are paying
    $13.50 per 1,000 impressions and you are getting a 1.3% click
    through rate. Your actual cost per visitor is $1.04.
    The maths: $13.50/(1,000 x 0.013)= $1.0385

    Great! You are making a profit of $0.16 per visitor.

    Just how profitable are your promotional efforts?

    More importantly, do you know?

    John
    No, the question is: Most importantly, do you know HOW?

    I have no idea how to set up metrics like this, but I do see the value in doing so.

    So, any blueprints on how to set this up effectively?

    Thanks!
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    Ok, sure. You can follow me on Twitter - http://twitter.com/Chris_Hunter ;)

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    • Profile picture of the author chris_surfrider
      Think about the numbers game from the merchant's perspective.

      Maybe the affiliate's spending $30 for every $35 they make at a 50% commission - but the merchant just sits there and and makes the full $35.

      AND they build a customer list, essentially for free.

      I know, it's IM 101, but many people fail to see this...

      -Chris
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      • Profile picture of the author John Taylor
        Originally Posted by chris_surfrider View Post

        Think about the numbers game from the merchant's perspective.

        Maybe the affiliate's spending $30 for every $35 they make at a 50% commission - but the merchant just sits there and and makes the full $35.

        AND they build a customer list, essentially for free.

        I know, it's IM 101, but many people fail to see this...

        -Chris
        Chris,

        Many people fail to see this because they don't see what they
        do as a business. They don't understand that business is about
        leveraging the assets that are available to them.

        Many people work in a closed system, they define their business
        by the number of hours that they have available (Because that's
        what they were used to in their JOB)

        They fail to see that a business isn't a closed system, there are
        lots of assets available outside their business.

        It's a shame so many people limit themselves with such thinking.

        John
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    • Profile picture of the author John Taylor
      Originally Posted by Chris Hunter View Post

      No, the question is: Most importantly, do you know HOW?

      I have no idea how to set up metrics like this, but I do see the value in doing so.

      So, any blueprints on how to set this up effectively?

      Thanks!
      Chris,

      The answer is in my original post, the formulas are there, just
      insert your own numbers.

      John
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  • Profile picture of the author Kevin Riley
    Originally Posted by John Taylor View Post

    I wonder how many warriors really understand the metrics behind
    their businesses.

    Let me give you an example..

    Let's say you promote someone else's product as an affiliate and
    you earn a 50% commission on a product which sells for $67.00.

    The sales conversion rate for the traffic that you are sending to
    the merchants sales letter is converting at 3.6% and that translates
    into an income of $1.20 for each visitor that you send to the site.
    The equation is: ($67 x 50% x 3.60)/100= $1.206

    Now, if you are using paid traffic, you know that to make a profit
    you need to spend less than $1.20 per visitor.

    Let's say you are using an advertising network and you are paying
    $13.50 per 1,000 impressions and you are getting a 1.3% click
    through rate. Your actual cost per visitor is $1.04.
    The maths: $13.50/(1,000 x 0.013)= $1.0385

    Great! You are making a profit of $0.16 per visitor.

    Just how profitable are your promotional efforts?

    More importantly, do you know?

    John
    John

    I use the glass jar method.

    If there are more beans in the glass jar at the end of the week, then business is good.
    Signature
    Kevin Riley, long-time Warrior living in Osaka, Japan

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