In this post, we will cover the algebraic formula that all blogs and websites follow when they are calculating how much money they made and how much they expect to make in the future.
This formula is the foundation of making money online. Every dollar you will make boils down to the number of visitors that visit your blog multiplied by the percentage of them that take an action, multiplied by the amount of money you make per conversion. It feels a little inhumane to think about your visitors as an algebraic formula, but it is important to understand this where the money comes from so you can make the right choices for your blog.
This is pretty self explanatory, but it is the number of visits you have to your website. It is common to talk about this value in terms of visits/month so that you can track it over time. These visits can come from:
The conversion rate for your site (or maybe specific products depending on how many ways you can make money) is the percentage of people that visit your site that end up purchasing the product or service you are selling. To determine this value you take the total number of products/services purchased and divide it by the number of visitors.
The Profit Per Item for you site is the amount of money you make on each sale after taking into account the cost of the good or service.
SallysWidgets.com (fake company) has 100,000 people visit their site in January through social media, organic search, and direct visits. In January, they made their $20,000 profit by selling 400 widgets that made them $50 profit each. If you take the total number of items purchased (400) and divide it by the total number of visitors (100,000) you will get the conversion rate (0.4%).
They can use the 0.4% value to predict how much money they will make in February if they get 120,000 visitors.
120,000 (visitors) * 0.4% (conversion rate) * $50 (profit per item) = $24,000
Another way to understand how blogs make money is to use a concept called visitor value. The visitor value of your website or blog is the amount of money that you make for each person that visits your blog. Not every visitor to your blog will buy one of your products or services, but over time (and enough sales) you will come up with a specific value for how much each person is worth. To determine the visitor value, you take your total profit and divide it by the number of visitors.
Using SallysWidgets.com again, they made $20,000 worth of profit through selling their cutting edge widget.
$20,000 (profit) / 100,000 visitors = $0.20 visitor value
For every person that visits SallysWidgets.com, the company can expect to make an additional $0.20.
There are only a few large knobs to turn when trying to make money online. You can focus on getting more visitors to your blog, you can try and increase your conversion rate, or you can increase the amount of money you are making per sales. Now that you know the math, we will give you an overview of the most common ways that bloggers can make money in the next lesson and you can get an idea of what you want your blog to look like in the future if you want to make money with it.