How to calculate potential ROI

3 replies
Hi,

I was reading through a few posts here and one bit of advice I noticed that came up fairly often was around basing your fees around the potential ROI for the customer, and not just a fixed dollar amount.

I think that idea is fantastic, but how in the world do you go about doing it??

My thoughts are:

1. Identify what an average client is worth


example: say for a personal trainer, a typical client does 2 personal training sessions per week @ $40 per session for an average of 10 weeks. = $800 (($40 x 2) x 10). By the way I have no idea if this is true or not, just making stuff up as an example.

2. Identify some relevant local keywords and the search volume for each keyword.

example: lets say there are 3000 people per month searching for local keywords related to personal training

3. Estimate number of clicks.

This is where I get a little lost. Ive heard that if you are in the #1 position you can roughly get about 42% of the searches, which in our example would = 1,260

4. Estimate number of conversions for each click through to the website

Ive heard the average is about 1%. So if the business owner converted 1% of the 1,260 into paying clients, they would stand to profit $10,080 per month. ((1,260 * 1% = 12) x $800)

5. Use the number in step 4 to calculate fee.


I think dexx has a ratio of 1 to 4. so for every dollar we charge them, we can make them $4. So in the example above you could charge a few thousand fairly easily.

So thats my thoughts on how one might calculate it. At the end of the day is this right, or am I way off the track??

Also a thought I had is to use strategies such as auto responders, video marketing etc... to increase number of people to site, and site conversion rate.

Dust off your calculators and get those fingers working, I look forward to seeing an example of the math.

:-)
#calculate #potential #roi
  • Profile picture of the author cobra5106
    Your approach is good to start. Then, you could create a PPC campaign around certain keywords (based upon your research), for some traffic. Split test a couple of ads and start generating some real statistics based upon your research.

    Hopefully, you may even be able to make a little income as well during your testing.
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    • Profile picture of the author isaacsmithjones
      You're on the right track, and this is the kind of stuff I'll tend to base my fees on.

      However...

      1. I would warn against basing too much of your calculation on SEO (unless you're some kind of SEO master). Especially how you assumed that you'd be in position number 1. SEO isn't one of my main services that I sell, because I like to be SURE that I can deliver.

      2. Use your CLIENT'S estimates to come up with your figures, and then adjust them if they drastically overestimate/underestimate.

      3. Its often a good idea to target people with large transaction values. A decent personal trainer can charge over $1000 per client for some kind of 6 to 12 week program, so a personal trainer can indeed make a good client.

      So here is how I might tweak your example:

      As I said, I personally wouldn't base too much on SEO, as in my experience, it can be somewhat unreliable. But if that is your main traffic source, then I will use SEO for the purpose of this example.

      1. Identify what the average client is worth - Or the average client WHO YOU ARE TARGETING is worth.

      Right now, we're aiming for $1000 clients.

      2. Relevant keywords and search volume.

      3000 searches.

      3. Estimate clicks

      At this point, you would ask the client something like:

      "Around 3000 local people are searching for your service every month. Realistically, the first position on google would give you around 42% of those people. This is about 1,260 people visiting your website. But I like to keep things reserved. So if we just say that you got half of that number. Around 600 people visiting your site each month. That's around 20 each day. Does that sound realistic to you?"

      Make sure the prospect agrees. Because if they think you're chatting bull... They're gonna turn their ears off.

      4. Estimate conversions of clicks

      Say to the client:

      "Perhaps the most important thing about the websites that I do is the fact that we optimise them for lead generation. This means that everything on the website is geared towards portraying your professional image, and motivating your visitors to call. In the past, we've had websites that have convinced 4 in 10 people to either call or sign up for a consultation. But I like to keep things reserved, so let's just say 1 in 10 visitors call or sign up for a free consultation. So now, out of the 600 people visiting each month, around 60 of these visits will result in you having real conversations with people who are genuinely interested in what you have to offer.

      Now... If you had 10 conversations with genuinely interested people, how many of those people do you think would sign up to work with you?"

      - Client says 3.

      "Okay, so then out of 60 conversations, those 3 sales would become 18 sales. That's $18,000 worth of business. But let's say you only managed to convert HALF of what you expected. That's still $9,000. And I'm gonna level with you. I've underestimated these numbers pretty drastically, so $9,000 is really the lower end of what you could be getting. But let's not get ahead of ourselves.

      To be honest, the only way that we can know the exact numbers is if we give this thing a shot. And if you're anything like my past clients, you're going to be pleasantly surprised"...

      5. Use that number to calculate the fee


      So the thing to remember here is that you want to underestimate, and always make sure that the prospect thinks that your numbers are realistic. Keep your prospect as involved with making the estimates as you can, as they can always aregue with the numbers that you come up with, but they can't argue with the numbers that THEY came up with.

      So I hope this helps.

      And as a bit of further reading...

      Here is a post that I wrote on value-based selling - hope it helps.

      This is a really powerful way of selling. And once you have a proven system, you might even want to look into working on a performance basis, so the more the client earns, the more you earn.

      But that's a whole other thing, because before you can work like that, you're gonna have to have a proven system in place, and a ROBUST qualification system to get rid of time-wasters.

      But for now, look into as much as you can on this stuff.

      Another thing for you to study is LIFETIME VALUE of customers. Google it, or PM me, and I'll send you some resources when I have more time.
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  • Profile picture of the author Josh Mayers
    Hey Paul

    Thanks for the great post and advice!

    These steps are very similar to how i track my R.O.I in my BingAd campaigns.

    -Josh
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