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Website marketing analytics professionals may calculate the lifetime value of a website member using a Net Present Value (NPV) financial analysis formula. Any website that requires a user to login – Yahoo!, Facebook and LinkedIn, for example – may have this analysis conducted. The exact proportion of banner or text ad revenue that is generated from each website member may be determined. Applying an NPV formula will reveal how profitable each member is in relation to the website’s cost of capital.

Web analytics software (eg. Google Analytics, WebTrends) captures the following website ad statistics: ‘# of clicks’, ‘cost per click’ and ‘click through rate’. The revenue that is generated from these clicks is also calculated for the site owner and its marketing affiliates. Cookie and customer login data also make it possible to track what percentage of a website ad’s clicks are linked to each website community member. The proportion of revenue earned from an individual may be determined, to which an NPV formula can be applied.

Let’s assume that a website community has one ad, ‘TOP BANNER’, that is located near the top right-hand corner of a member’s profile page. And that TOP BANNER displays one ad each day of the year, 24 hours a day. A cookie and e-mail login system also tracks every website member’s ad clicking behaviour. The following is a summary report that may be generated for the TOP BANNER ad:

a. # of unique members – 100 (using an e-mail login to track each unique member)
b. # of clicks on TOP BANNER ad – 1000 (# of times that TOP BANNER was clicked on by all website members)
c. # TOP BANNER impressions – 10,000 (# of times TOP BANNER was viewed)
d. # TOP BANNER click through rate – 10% (formula calculation: b / c)

As an example, let’s say that $10,000 in revenue was generated by the TOP BANNER ad spot in one year. To conduct a lifetime value analysis, it is first necessary to count the number of times each website member clicked on the TOP BANNER ad. A calculated variable named ‘CLICK RATIO’ can capture what percentage of the TOP BANNER ad’s clicks are linked to each website member.

If the CLICK RATIO value for one member is ‘.10′, he or she was responsible for 10% of TOP BANNER ad’s clicks during the year. A revenue value for this member, ‘REVENUE VALUE’, might then be derived using the following formula: $10,000 * 10% = $1,000. The result of this calculation reflects his or her ad revenue value for the year. Applying the NPV formula to each website member’s REVENUE VALUE might reveal his or her true value versus the website’s cost of capital. This NPV formula is as follows Rt/(1+i)t:

- where R = the REVENUE VALUE for a website visitor for the year
- t=1 (the analysis is being conducted for a year, and so one year of financing was required)
- i = the rate of return that must be assumed given current interest rates

Applying the NPV formula becomes more important if the value of website visitors to the TOP BANNER ad is to be evaluated for more than 1 year, say five years.

Marketing analytics professionals may apply financial analysis techniques to evaluate each login-based website community member’s value. This analysis might reveal how much ad revenue each member generates for a social networking site such as Facebook, Yahoo! and LinkedIn. And findings may guide future decisions about how much to spend on future membership marketing efforts.

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