Once you know how to calculate the value of a visitor to your site, you'll be able to figure out how much you can afford to spend on advertising without draining your wallet.

There are a few simple calculations you'll need to make in order to determine the value of your visitors. In order to make these calculations, you'll need to know your total number of sales, gross revenues, total expenses, and unique visitors for a set period of time (let's say a month). Once you have these figures at your disposal, you're ready to do some math!

Step 1: Calculate the conversion rate of your site

Your conversion rate is calculated by dividing the number of unique visitors to your site by the total number of sales you made in a given time period. Here's the equation:

Unique Visitors / Total Number of Sales = Conversion Rate

For example: if your site got 5,000 unique visitors last month, and you made 40 sales, then your equation would be: 5,000 total visitors / 40 sales = conversion rate of 125 unique visitors per sale

If you don't know how many unique visitors your site gets, contact your Web server and ask to see your server logs. Your logs contain a lot of data about your traffic and are a goldmine of information!

Step 2: Calculate the net profits for every sale you make

In order to determine the true value of a visitor, you'll need to know what your "take-home" profits are for each sale, after all your expenses have been subtracted. Here's the equation:

(Gross Revenue - Total Expenses) / Total Number of Sales = Net Profit per Sale

If you sold 40 items for $79.95 each last month: 40 sales x $79.95 per item = $3,198 gross revenues

From your total gross revenues, you'd then subtract your monthly expenses. If your total expenses came to $1,566, your net profit would be: $3,198 gross revenues - $1,566 expenses = $1,632 net profit

Next, divide your total net profit by your total number of sales to calculate your net profit per sale. For example, if you made 40 sales: $1,632 net profit / 40 sales = $40.80 net profit per sale

For every $79.95 item you sell, $40.80 goes straight into your pocket as pure profit!

Step 3: Calculate your visitor worth by dividing your net profit per sale by your conversion rate

Now that you have calculated your sales conversion rate and net profit, here's how you calculate the value of a visitor:

Net Profit per Sale / Conversion Rate = Visitor Worth

If your net profit per sale is $40.80 and your conversion rate is 1 in 125, then your equation will look like this: $40.80 net profit per sale / 125 conversion rate = $0.32

This means you can afford to spend up to $0.32 to attract a single visitor to your site. So if you invest $50 in testing an advertising technique, it should bring you at least 156 visitors to break even -- and one of them needs to buy your product. If you receive fewer visitors than this and no one makes a purchase, then your test has failed, and you'll need to move on to the next test!