Paid Ads Or Free Traffic Sources?

value-of-a-customerLet’s have a look at the “real” cost of free traffic generation versus paid advertising.

Print ads, postcards, ezine ads or Solo Ads, once tested and scaled up can exponentially build you business as fast as you want.

The key is testing, tracking and adjusting your ad & funnel until you find what works. And… this is where many stop short. They usually quit before they hit real paydirt.

That is a regretable. Because if they would have worked at it, they would have been rewarded with scaleable and unlimited business.

Free traffic sources can be extremely labor intensive and time consuming, therefore not actually free, when you count the opportunity cost of your time. Let’s have a look at “free” traffic costs and we’ll get to paid ads later.

Do You Know The Formula For Customer Value?

Do you know what every website visitor costs you to acquire? Do you have any idea how much each one of your subscribers are worth to you?

Setting up and knowing your formulas could mean the difference between success and failure in your business. It certainly will determine if you are even competitive in your niche.

Many companies have no idea how much each of their customers cost to acquire, or how much a life long customer is worth to them. They just go along every day hoping for the best and that at the end of the day, they end up with profit.

Well, this is what I like to call the shotgun approach. You shoot a widespread pattern hoping that you will hit something. Like profit I guess.

But what if you took the sniper approach? What if you knew exactly what you wanted, knew exactly how much it would take to get it, and that it was within your reach as long as you took the necessary actions?

I prefer the “sniper” approach. When you begin to make use of “paid” traffic methods, you will understand this better.

But for now, let’s assume that you are still using free traffic generation strategies. This information is still critical to know before you start going off in all directions looking for the golden treasure (targeted traffic).

Do you even know how much a visitor costs you to acquire? If you are not paying for website visitors, how much of each marketing action do you have to take to build up your visitors?

Let’s look at a hypothetical scenario. You received 1000 unique visitors last month through your normal marketing channels. You worked on your blog, created content, commented on blogs and forums, distributed your content on social media platforms, and worked on back links, etc.

And there are many other things that you could be doing to grow your business. But let’s stop there for a moment. If you are earning $10.00 per hour on your job (and that can be scaled up as high as your earnings are), and you invested 20 hours per week (equaling approx 80 hours for the month), then the “opportunity cost” of your time alone cost you $800.00 at the $10.00 an hour scenario! More if you make more than that.

geralt / Pixabay

Opportunity cost being calculated as the money you would have earned at your job should you have invested the extra time there, and got paid for it. Now, can you see that free traffic generation is not really free?

Getting back to our customer value. Those 1000 visitors did not necessarily buy anything or produce any revenue for you.

Let’s see. Let’s say that one percent took a desirable action before leaving. That would be 10 people. That’s ten people that subscribed to a list, either your ezine or autoresponder ecourse. Well, that is not anything we can put a value on yet, so…

Let’s say that each one of the ten bought something worth $27.00 equaling $270.00 revenue. Now we can start to calculate the value of a customer and of a visitor. We can’t calculate the value of a lifelong customer yet but let’s work with what we have.

My goal here is not to go into full detail but to get you thinking about customer value. Whole books and many articles have been written on the subject.

But I digress. Here is a rough calculation to start you thinking. You have 1000 visitors for the month. Ten people have purchased a product or service. You have a revenue for the month of $270.00.

Even calculating at this level, you have a single customer gross value of $27.00. You have a single gross visitor value of 27 cents each. If this all sounds too technical, just think of each visitor as being worth 27 cents to you, and each customer being worth $27.00.

But then we have to enter the costs to get this revenue. If you are using free traffic generation, there is no “real” cost here in money terms. There will be web hosting, autoresponder, and other real costs but let’s set them aside for the moment.

You have an opportunity “time” cost of 80 hours. Let’s stick with just ten dollars an hour. You spent the equivalent $800.00 in your time. (If your time is worth twenty an hour then you can double that to $1600!)

Your customer acquisition costs are $800.00 divided by 10 which equals $80.00. Your cost per visitor is $800 divided by 1000 equaling 80 cents each. You can see that “free” is not free at all. In this scenario, you may have come out with a positive cash revenue temporarily , but it is not sustainable nor scaleable.

Just for fun, let’s say you used paid traffic sources and the same 1000 visitors came and 10 customers bought. Let’s say that it costs you $150.00 in advertising to get it.

Your info product brings in the same $270.00 revenue and downloads cost you very little in real money. Simple math tells us that you just made a gross profit of $120.00. Your visitor cost would be just 15 cents, but would be worth 27 cents to you.

And now take a look at it from this angle.

Let’s say that it only took one week to do that, instead of a month of hard labor. Because you advertised your site instead of doing everything yourself, and the revenue was greater than your expenses, you can invest infinitely with the right formulas.

Once you find the formula and strategy that works, it will be unlimited in how much you can grow! Starting to get excited now?

Know what it costs you to gain a visitor, a subscriber, a customer, and what each one of those means to you, in revenues vs costs. Revenue less costs equals what value each one is to you. This was the simple version.

If you use free or paid traffic sources, then you might want to read this more detailed article on The Digital Marketer – How To Calculate Your Average Customer Value (And Why It Matters)