Profit Per Visitor

Every once in a while, I’ll catch a conversation on Twitter or LinkedIn about “the metric that matters most” or the “ONLY THREE metrics for ecommerce you’ll EVER need” or something like that. 

I’ve taken the bait on these conversations —usually to say that conversion rate is kind of a dumb metric—but feel a little bit conflicted about participating since (a) my contribution is just saying that one metric is bad and (b) I don’t honestly think that there is one single metric that, if you optimize it, is going to solve all your problems.

I’ll do my best to be productive here, though, and want to highlight a metric that I think is quite valuable and is not tracked often enough: Profit Per Visitor (PPV). 

PPV is a compound metric, and is driven by some of the more popular metrics that people are fighting over. It breaks down into a few components:  

(Conversion Rate X Average Order Value X Profit Margin¹) / Visitors 

The first thing I like about it is that it helps you understand tradeoffs and net them out. For example, let’s say you launch a discount because you think it’ll help you grow:

• It will almost certainly boost conversion rate since we all love a deal (good!)

• It may decrease your avg. order value (AOV) since prices are lower (not good!)

• But actually, if it’s something like a volume discount, then maybe it’ll increase your AOV (good?) 

• Your profit margin is likely to shrink as you discount products (not good!)

By tracking profit per visitor, you can just see how these things weigh against each other and make a decision that considers all these factors.

The second thing I like about PPV is that it can serve as a “translation layer” between different teams and initiatives. One thing I’ve observed in talking with brands is that they often view a lot of their levers for optimization as independent of one another—you may have one team focused on optimizing the UX of the website, an ops group focused on shipping strategy, and a different group of people making pricing decisions. Oftentimes, those teams are running in silos and optimizing based on their own metrics. But these decisions are inextricably linked—they all impact what a customer is ultimately going to pay you. PPV is a metric they can all ladder up to and gives you a way to evaluate impacts across those very different functions. 

The third thing I like about PPV is that it’s actually tracking profit—not just revenue (duh). That’s super obvious, but I see way too many people get stuck looking at just revenue metrics (like revenue per visitor or revenue per session), because they are solving for ROAS² (which is also a revenue metric) inside Meta. And when you’re totally zoned in on the top line, it’s very easy to get into unhealthy habits. 

Ash Melwani at Obvi did a presentation on this about a year and a half ago at Elevar’s Summit that stuck with me, and he posted about it on LinkedIn earlier this week: 

Losing money on a first order is something that brands used to be able to do when capital was both cheap and available. Now, that well is dry—equity and debt are either not available for brands or very expensive, which means it’s very painful to wait around for that customer to return and finally become profitable. Making your funnels profitable on the first order is a must for most brands these days. 

So that’s my piece - I think PPV is a metric that we should be paying more attention to as an industry. Not many people know it, let alone optimize it, and even at Intelligems—where we report on this metric in test results—we don’t yet report on it for our customers when they’re not running experiments. 

PS - Profit per visitor has plenty of its own shortcomings, which is why I don’t think a single metric is possible. Here are a few things I struggle with as it relates to PPV:

• Because the metric is normalized (“per visitor”), some of the things you might might (like the offer, the price, etc) are also some of the things you might promote, so it might impact your traffic, as well.

• It doesn’t take into account repeat purchase rates, LTV, or anything outside of the session itself. (Probably most important for brands with heavy subscription businesses.)

• The way we’re calculating PPV at Intelligems is gross profit per visitor. While this works in the majority of cases, there are nuances as you take it down to contribution margin.

1  For ease, we usually look at this as gross profit margin - [Basket Size - Discounts + Shipping Revenue] - [COGs + Shipping Costs]. So the metric is really Gross Profit Per Visitor

2  Return on Ad Spend = Revenue from Ads / Ad Spend