How The Value of A Visitor Depends On Your Media Business Model

By Dan Willstrand Dec 13, 2018

Reading 5 min

How much is a website visitor worth? This is crucial knowledge to anyone investing in digital marketing and paid traffic to their websites. The answer is that it depends on your business model and how good you are at converting traffic into revenue.

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In the last 18 months news publishers have focused on switching from advertising revenues to various types of paid content models. The most popular is of course subscription. Having people sign up for year-long contracts is comfortable and safe. But after an initial honeymoon with fast-growing subscription numbers, the surge has calmed down. It turned out that many subscribers chose to disconnect once their discounted trial offerings came to an end.

This churn is something news publishers are working hard to get across, but it seems - as always - that the receipt for future success does not only include one revenue stream. It will have to be a mix of paid content, intelligent advertising and e-commerce.

So let’s look at the value of a visitor in the different business models.

VALUE OF A VISITOR – SUBSCRIPTION MODEL

In this case we assume that all your business is online and that all news leads comes from the internet.

The first thing you have to do is to estimate the Lifetime Value (LTV) of a new customer, which typically a function of the monthly subscription price and the time subscribers will stay with you. If you sell subscriptions at $29/month and your churn is 5%, the LTV is 29 / 0,05 = $580. This equals that the average subscriber stays with you for 20 months.

If you sell 5,000 subscriptions in a year this means $2,900,000 in new lifetime customer revenue.

The next thing to understand is the value of a new website visit. Let’s say you have 2,000,000 visits from not logged in users in a year. Then the value of a new website visit is $2,900,000 / 2,000,000 = $1.45. (Given that these 2,000,000 visitors converts to 5000 subscriptions, all other things being equal.)

Conclusion for subscription model:

As long as your marketing/traffic team invests less than $1.45 per visit, it makes sense to continue.

Of course, you can improve the numbers above by optimization. Converting a higher portion of your visitors to subscribers should be one important metric to focus on, but reducing churn might be even more relevant. Remember: attracting new customers will typically cost your company 5 times more than keeping an existing customer. If you want to read more about funneling your subscribers I can recommend this post.

VALUE OF A VISITOR – ADVERTISING MODEL

Valuing a visitor in advertising financed media also follows a straightforward formula. Digital media often have a mix of ad buying opportunities, using different pricing models, e.g. cost per impression (CPM), cost per click (CPC), fixed-price sponsorships etc, which may seem confusing, but by dividing total revenues with impressions you can convert everything to a common metric called eCPM. The exact formula goes:

eCPM = total cost / (impressions / 1,000)

eCPM is also used to measure revenue per thousand impressions on the publisher’s side. Which means you just change switch from the total cost to the total revenue you make which gives you:

Publisher eCPM= total revenue /(impressions/1000)

Example: if your total advertising revenues are $1M and you have 50M impressions, then your eCPM is 1,000,000 / (50,000,000/1000) = $20.

eCPM of $20 equals $0.02 per pageview. If the average number of pageviews per session is 2, this means that the average value of a visitor is $0.04.

Conclusion for advertising model:

If you look at it as a pure arbitrage deal, it makes sense to acquire traffic as long as it costs less than $0.04. But please note two things:

  • A new visitor who likes your content will probably return. Hence, the value of a new visitor is often much higher than described above. So to make a more detailed calculation you’ll want to look at the lifetime value of a new visitor and split new visitors with the recurring ones.
  • The eCPM may vary considerably, due to several factors such as content category, quality, audience location, audience demographics, seasonality etc. Meaning that a visitor can have different values depending on what pages he or she views.

CHOOSING STRATEGY

The advertising model is clearly a volume case. If your content is popular but costs little to produce, and if your overhead is low, advertising can be your best revenue strategy. But if you invest heavily in creating unique content, then a paid strategy is likely to be your main source of income. In either case, you are probably best off if you combine those strategies as a hybrid into a freemium offering.

 

 

 

 

 

 

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