How to Calculate Traffic Acquisition Cost ROI

All traffic acquisition comes at a cost: either real or in terms of opportunities you lose by spending time just trying to get those hits in rather than working on your business.

For example, read through Yahoo's experiences with climbing traffic acquisition costs in 2015.

Although they technically made more money, with a 350% rise in TAC they were left with a loss instead of the profit they had previously enjoyed. There were a lot of factors that entered into the equation, but TAC remain the bane of a lot of pure web businesses existence.

But, is it worthwhile?

In Yahoo's case, the then-CEO Marissa Mayer thought so. She cited the fact that Yahoo was a business 'in decline' and that the narrowing margins were the price to pay for increased visibility. That story did not end particularly well, and Yahoo is now part of the newly formed Yahoo Verizon business vehicle.

From Verizon's point of view, despite not getting the discount they initially sought, a 4.5 billion dollar price tag would argue that the increase in visibility, users, and, in short, customers and traffic (opportunities to make more customers) has a fair bit of residual value.

We're not all Yahoos, or Verizon's, though, but calculating your ROI on TAC is still important.

Let's assume you sell physical objects, and advertise through Facebook and AdWords. For these services, you pay a click fee. Each time a user clicks your advert, and is delivered to your sales page, it costs you money.

A percentage (and I hope a high percentage) of those views become sales. The questions you need to answer are simple:

• How much does each sale make?
• What is the lifetime value of the customer?
• What is the conversion rate?

From these questions, you can create two useful metrics. The TAC ROI and the LTAC ROI.

The basic TAC ROI (traffic acquisition cost) is simply the cost of making a sale. If you pay out $100 in AdWords fees, and generate $200 of sales, then your ROI is double your investment. On the other hand, if your sales do not even cover your advertising costs, then you will enter negative ROI territory.

This may not matter if your Lifetime TAC ROI is higher.

And, it can be much, much higher. In fact, if you sell printers, for example, you can well afford a negative ROI on the sale of the printer if your lifetime value of the customer is linked to excruciatingly high ink cartridge prices.

Website Traffic Acquisition Strategy 101: How to Get More Traffic to a Website

Getting more traffic to a website is the lifeblood of any online business, and increasingly important to bricks and mortar business, too. In the past, it was all about SEO, and sometimes over-optimising a web site in the process, just to get a jump on the competition.

These days, however, there are many different options:

• Organic traffic (i.e. basic SEO and keyword research);
• Paid traffic (i.e. AdWords and/or Facebook ads, paid inclusion, banners, etc.);
• Social traffic (i.e. Twitter / Facebook / YouTube / Instagram ...)

In the spirit of keeping things simple, we're going to assume that traffic can only come from one of the above sources. It will give you plenty of options to get started.

However, the first question to ask is...

What Kind of Traffic do you Need?

If your answer to this is 'any traffic is good traffic', then think again.

The relentless pursuit of traffic at any cost is bad for the nerves, and bad for business. Usually, getting the right kind of traffic is a much better strategy than the hit-and-hope approach of old. Even for mass market products and services.

The focus should be on getting traffic that comes with an intent that is in line with your customer acquisition strategy. That's not always about money; sometimes it's about taking some kind of action.

Often, different strategies can be used to bring in different kinds of traffic.

For example, if your goal is to get people on your mailing list so that you can later send them a message with a different call to action (CTA), your strategy will be different than the one you use to pull in paying customers through online advertising.

Then again, if brand visibility is at the core of your customer acquisition strategy, then pulling in traffic that is hungry for information, and firmly in your target market should be the priority.

Not just any traffic at any cost.

Are You Willing to PAY for Traffic?

Let's get this one out in the open: paid traffic is not a dirty concept.

Here's an adequate cliché to go with it: sometimes you have to speculate to accumulate.

Payment, however, can take different forms depending on how you want to get your traffic. The traffic source is also closely aligned with the kind of traffic you would like to attract.

When you think of paid traffic, you usually associate it with various forms of direct advertising;

• Paid search inclusion;
• AdWords / banner advertising;
• Etc.

However, it's also possible to buy traffic that has been redirected from domain names that are no longer in use, and pay people to create forum posts that link back to your site; not to mention paying people with loads of followers to plaster their timeline with your advertising message.

A lot of these actions you could also do yourself. Or, to put it a different way: pay yourself to do.

But, the investment in time that is involved will often mean that the opportunity cost of building up a following of fans just to sell them a single product during the holiday season isn't going to work out.

It would be a better investment to hand that off to someone else, someone whose actual calling is in creating a stream of traffic for you, while you get on with actually running the business, and delighting your customers.

How Will You Know If It's Working?

Let's pull these together.

You need traffic, you'd like organic traffic, but are willing to pay if it is demonstrably profitable.

If your traffic goal is instant sales, then advertising bubbles up the list a bit, because it is very easy to divide the cost of acquiring sales by the value they generate in order to determine the return on investment.

Likewise, it's also very easy to track the conversion rate (how many sales for how many visitors) in order to improve it by fiddling with the sales message.

Modifying the landing page, and acquisition channel (including the wording on the sidebar ad, paid inclusion summary or AdWords advertising panel) all give you the opportunity to improve these ratios.

For those taking a longer term view, relying on instant sales data is meaningless: if you are trying to attract visitors to your content, in order to get them on a mailing list, and sell them a hefty annual subscription, for example, the lifetime value of a customer is much more important.

However, the basic ratios are still the same.

Here are some tips for maximising your traffic acquisition success:

• Do your keyword research properly, or get an expert to do it for you: keywords aren't just for organic search and SEO, they're a method of communication -- your buyer's intent towards you, and your value towards them;
• Never be afraid to experiment with new messages and ways of delivering those messages, but make sure they remain in line with your core values;
• Track everything by using metrics reflecting how you acquire traffic, and what component of your strategy is delivered by that traffic;
• Track the metrics.

To get started, I recommend taking the Free Keyword Research Tutorial from The Keyword Coach: it will not only help you appreciate SEO more fully, but also has some great processes that you can use to determine audience intent: are they clickers or buyers?

Factoring Social Traffic Acquisition Strategies into Your Business

I reference TV, YouTube videos and podcasts quite a lot when I'm trying to explain different traffic acquisition and search engine engagement models as the visual and audio media are great ways to cram an awful lot of information into a relatively short space of time.

A recent Apprentice episode (The Apprentice, reality TV programme,  BBC One, London, 29th March 2014) serves to highlight a traffic acquisition technique that I'd previously heard referenced in a recording of an event set up by Matt Bacak (Traffic Infusion 2014) -- namely, using social influence to generate leads.

For those who didn't see The Apprentice Week Four episode in question, the task was to create a YouTube video channel and see which team got the most hits. This has echoes of a similar task run by Donald Trump in the original US version of The Apprentice franchise (The Apprentice : Episode 4, Snack Attack, NBC, New York, USA, 7th October 2010) which involved creating a viral video to promote a popcorn based snack brand.

Where the US version concentrated on getting the message across to promote sales, the recent BBC spin was to generate views, on the assumption that traffic attracts advertisers. That's a business model in itself, but the end result hinged on a part of the task that at first glance might have been overlooked by many viewers.

Traffic Acquisition using Social Influence

Part of the task was in selling their concept to a YouTube celebrity, to get them to agree on a collaboration, and then, vitally, use their social influence to promote the channel. We all know how hard it is to get traffic to an online property, and so using someone else's influence is an obvious strategy.

During the Traffic Infusion 2014 event, it was suggested that one of my favourite traffic acquisition strategies -- participating in online discussions -- could be enhanced by finding one person with a very active, and respected, profile, and paying them to host your link in their signature for a set length of time.

The Apprentice task mirrors this, using a popular online video producer to drive traffic; not for money, in this case, but in return for the exposure on one of the BBC's flagship crossover reality TV business programmes.

My point is this: if you're looking for a traffic acquisition strategy that really engages and pre-qualifies your audience, then using collaborations, or just paying for the association with someone who already has authority in your target channel, can be a very profitable way to create new traffic streams.

One book that is strong on this subject is Social Media Metrics Secrets, by John Lovett. It might be a 2011 book, but it's worth reading if only for Chapter 7, which gives you explicit guidance on measuring your ROI from social media engagement strategies, including a section on traffic acquisition.

Recommended if you are thinking of taking the plunge and using search engine and social engagement as part of your ongoing traffic acquisition strategy.