Many marketers struggle to measure the ROI of their activities. It can be difficult to demonstrate the value of your time and investments if you can’t prove the impact on your business. And when it comes to website personalization, you should be able to justify that the benefits you receive outweigh the cost. In my first post in this series, I wrote about how to calculate the ROI of personalization for improving demand generation on a website. In this post, I’ll focus on the quantifiable benefits for media sites focused on content publishing.
Content publishing websites typically generate revenue from two sources: advertising and subscriptions. I’ll walk through how to calculate the impact of personalization on both (or either) of these sources.
The formula for calculating basic ROI is simple — you just need to isolate the gain you receive and divide it by how much you spend to achieve that gain.
% ROI = (Gain/Investment) x 100
To calculate the ROI for personalization on a content publishing site, you’ll need these variables:
- Page views per month
- Online ad revenue (total or per page view)
- Expected increase in page views with personalization
- Unique visitors (UVs)
- Paid subscription conversion rate
- Average paid subscription value
- Expected increase in subscriber conversion rate with personalization
- The cost of a personalization solution
Quick note: I’ll be doing all these calculations with monthly values so that we can calculate the monthly breakeven point.
How to calculate increase in ad revenue
First we need to identify the gain you’ll receive from website personalization, starting with ad revenue. Ad revenue is typically dictated by the number of page views a site receives. It can be calculated like this:
Ad Revenue = Page Views x Revenue per Page View
You should already know your monthly ad revenue, but I’ll calculate it here for my example. Let’s assume that you have 200,000 page views a month and you receive $0.25 per page view. In this case, your monthly revenue from ads is $50k.
200,000 x $0.25 = $50,000
Now you need to identify what will change once you implement personalization. A content publishing site will utilize personalization to increase the number of articles a visitor views (in other words, increase its page views). Let’s assume a conservative 10% increase in page views per month. This would give you 220,000 page views and new monthly ad revenue of $55k.
220,000 x $0.25 = $55,000
How to calculate increase in subscription revenue
If you sell subscriptions to your content, your subscription conversion rate will also be impacted by personalization. Again, you should already know your monthly subscription revenue, but I’ll calculate it here for the example. Subscription revenue is calculated by multiplying the number of unique visitors by your subscriber conversion rate and the value of one subscription. Therefore, if you have 100,000 monthly unique visitors, a 2% conversion rate and a $50 subscription value, your monthly revenue from subscriptions is $100k.
Subscription Revenue = Unique Visitors x Conversion Rate x Subscription Value
100,000 x 2% x $50 = $100,000
By providing relevant content to each visitor, and encouraging them to subscribe at the right time, personalization should increase the number of people that subscribe to your content. If your subscription conversion rate increases by 10% as well, you would have a new conversion rate of 2.2%. Keeping the other two variables constant, you have a new subscription revenue of $110k.
100,000 x 2.2% x $50 = $110,000
How to calculate revenue gain from personalization
Now that we know your revenue before and after personalization, we can easily find the revenue you’ve gained. Your monthly revenue before personalization was $150k and your revenue after was $165k, so you gained $15k.
Monthly revenue before: $100,000 + $50,000 = $150,000
Monthly revenue after: $110,000 + $65,000 = $165,000
Gain: $165,000 - $150,000 = $15,000
How to calculate ROI of personalization
Calculating ROI from this point is simple. You just need to divide what you gained by what you invested to achieve this gain. In this case, let’s assume you paid $2,250 a month for a personalization solution. You’d have a 667% return on investment.
% ROI = (Gain/Investment) x 100
($15,000/$2,250) x 100 = 667%
How to calculate your breakeven point
Not bad! Let’s take it one step further to figure out how many months it will take you to make back your investment, by dividing your yearly upfront cost by your monthly increase in revenue. In this case, it’s just 1.8 months!
Breakeven point = Yearly cost/Monthly increase in revenue
($2,250 x 12)/$15,000= 1.8 months
The ability to measure impact is critical for marketers. Plug in your own numbers to these calculations (modifying it a bit if you don’t have both of these revenue streams) to measure your ROI on your existing personalization efforts or your planned ones.