Question

Customer Profitability Score

Exercise:

If the average annual cost per customer of a software house is $1592, customer A generates a profit of $365, and Customer B generates a profit of $1425. Calculate the CPS and compare the results.

Please type your answer below.

       Search Engine Rankings (by keyword) and
       click-through rate

Why is this indicator important?

Along with page views and bounce rates (see KPI on page 155), search engine rankings (by keyword) and click-through rate are among a number of metrics that are used in website traffic analytics for assessing the effectiveness of an organisation’s internet strategy in attracting and gaining value from visitors.

Search engine rankings (by keyword) is simply a measure of website ranking based on relevant keywords. Unlike web directories, which are maintained by human editors, search engines operate algorithmically or are a mixture of algorithmically and human input.

The goal of achieving a high search engine ranking is to increase website visits. Sinply put, the higher the ranking the greater the likelihood that a person browsing the web (a searcher) will visit your site (obviously they are more likely to look at a website that appears on the first page than at one that appears on page 9 or 10 – see Tips/warnings). This is called the click-through rate (CTR), which simply means the percentage of time that a searcher clicks on a website displayed in their search results versus a different site. CTRs are impacted significantly by the search engine ranking for a particular keyword. At present, the most dominant search engine worldwide is Google.

How do I measure it?

Data collection method

The online collection of rankings from search engines, such as Google.

Formula

A search engine ranking is simply a website’s position on the search engine ranking. Consider the following as an example of measuring a click-through rate. A reported in the book The Small Business Owner’s Handbook to Search Engine Optimization (see References), a site that has earned a Google ranking of number one for a particular keyword produces a Google click-through rate of 42% versus the site that is ranked number 10, which produces a meager 6.06% ctr.

Example

This example comes from www.SEbook.com (see References) for predicting an increase in online sales for each keyword. For example say an organisation scored a Google website ranking of number one for a keyword that, according to the SEOBook.com Keyword Selector Tool (which provides a list of up to 15 of the most popular search queries for each word you enter), was searched on 100 times per day in Google. The site ranking number one would

       Search Engine Rankings (by keyword) and
       click-through rate

receive a Google CTR of approximately 40%. This would translate into 40 visits to the website each day (100 searches x 40% CTR = 40 visits), or 1,200 visits per month.

Now we will convert the 1,200 visits into dollars. For this we will assume that the website delivers the average 2-4% conversion rate (sales from visits). This means that the 1,200 visits should produce approximately 24 to 48 orders per month (1,200 unique visitors x 2-4% = 24 to 48). We will also assume that your average online order is approximately %50. We will also assume that your average online order is approximately %50. Therefore, a single keyword with a Google website ranking of number one could drive between $1,200 and $2,400 of online sales for your business each month, or $14,400 to $28,800 annually.

Exercise:

Answer the following question.

1.         What is the difference between organic click-through rate and inorganic click-through rate?

Please type your answer below.

2.         How is click through rate linked to Search Engine Optimization?

Please type your answer below.

3.         How can organic click through rate be improved?

Please type your answer below.

Answer 1

There are many questions, Hence I am giving you an answer for the first question:

Question 1. If the average annual cost per customer of a software house is $1592, customer A generates a profit of $365, and Customer B generates a profit of $1425. Calculate the CPS and compare the results.

Answer: Customer profitability score is used to analyze the profitability of the customer and it helps us in allocating the resources behind the customers.

Customer profitability score (CPS)= (Revenue earned from a customer - the cost of maintaining the customer ) during the same time period

CPS for customer A = 365-1592= -1227 (in USD)

CPS for customer B = 1425-1592=-167 (in USD)

We can clearly see that in both the customer case costs of the case are higher than earnings but in case of a customer, losses are too high to be afforded, however in the case of customer B we can make some cost-control measure and turn this customer in a profitable customer.