ThinkMetrics' CEO discusses how a number of analytic steps need to be taken before a website is built.
Planning
I got interested in web analytics when I was working as an internet investment analyst for a venture capital firm in London during the dot-com boom. I read 200 business plans, and was part of a small team with $400 million to invest. One thing became apparent; very few people had planned the path between initial site launch and success. Most people could tell you what they were going to build, and what they hoped to achieve. Few could tell you how they could control what happened in between.
This is like setting off in a yacht without a rudder or compass. You know where you want to get to, and if the winds co-operate you'll be OK. But you won't know if you're on track till you bump into land, and even if you knew you were off-course, you wouldn't be able to do much about it.
Before a website is built a number of key metrics need to be planned. This is similar to the core financial model one creates when planning a new business. The numbers which come from the planning stage determine targets and budgets. They also tell you if your online business is viable at all. Basic viability is not a given--most online businesses fail, and never stood a chance to begin with.
Targets
The first thing one needs to do is set the key targets for the site. These targets fall into two categories; physical components, and financial targets.
Physical Components
People don't passively view websites, they interact with them. Physical components are the things you want someone to do on your site. With physical shops the thing you want customers to do is give the cashier money. Everything a retailer does is geared towards getting people to do this. Your website is similar-- there are certain pages you want people to see. These are your "target actions." If you're selling goods online, you want them to see the page which says "credit card processed OK." If you want them to make an enquiry which you can follow up with a phone call, you want them to see the "contact details received" page. Most sites legitimately want both.
In order to assess whether this is happening, you need mechanisms to report how many people do this. These people are said to have converted from visitors to customers (or prospects). The percentage of total visitors who convert is your "conversion rate."
When your site is running, you'll need mechanisms in place to change things if you're not meeting your targets for converts. Everything you could conceivably do to increase converts, as an absolute number or percentage, will need its own mechanism for assessment.
Financial Targets
Determination of conversion targets is a financial planning exercise. Here you are setting absolute numbers, not the conversion rate. Conversion rates are fairly uniform. Aim to break even at a 1 percent conversion rate, and have a thriving business at 2 percent. A few sites do better, but they are the elites of this business. A few others make a profit at a conversion rate below 1 percent, but other aspects of their business are super-streamlined.
If you complete the planning exercise and you can't realistically make money at 2 percent, the business is not viable. Don't despair-- count yourself lucky you found this out before you built it.
Profit per sale
The critical determinant of how many converts you'll need is your online profit per sale. This is your per-sale profit after you remove all off-line costs. Divide this by 50 - 100 to determine profit per visitor. This is the absolute maximum you can afford to spend per visitor. Period. This includes site construction, maintenance, online marketing-- everything. The reason I am emphasizing this so much is it is usually much lower than people expect. There's nothing you can do about it-- that's the hard fist of reality hammering on your dreams.
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