A quirky thought struck me today: Is page view per employee the new benchmark for establishing competent performance at a Web company?
In the early 1990s, we looked at software and information services investments using a $100,000 benchmark - $100,000 in company revenue per year, per employee. Per this rough rule of thumb for reviewing deals, your execution and profitability were on track if your numbers fell along these lines. If your business combined this with rapid growth, we'd stalk you aggressively for a meeting. Unfortunately, this software benchmark is inappropriate for evaluating the current army of Web companies working to build traffic rather than channel sales. So...how would a formula for traffic metrics work?
I was fortunate enough to be on the phone with John Battelle of FM Publishing when this thought came up, and he shared his expertise on current ad market metrics. (Disclosure note: Omidyar Network is an investor in FM Publishing.) Based on this conversation with John, here's the basic hypothesis that I'm intrigued enough to test:
1. Establish the average metrics for the segment you're investing in. To walk through the exercise, I used these three average assumptions:
- CPM = $20
- Sell-Through Rate = 80%
- Baseline Employee Revenue = $120,000/year. (It seems safe to assume that costs are higher now than they were in 1992.)
A base case would change substantially for Web segments with different assumptions. e.g., even the best bloggers earn $5 - 15 CPM currently, not the $20 - 40 that the New York Times can pull in.
2. Using the appropriate metrics for the segment, establish the baseline performance that will let you sleep at night by applying this formula:
Baseline Employee Revenue x 1,000
--------------------------------------------
CPM x Sell-Through Rate x 12
Unfortunately, data on employee counts is limited for emerging companies, and Alexa data is flawed, so it's difficult to define a proof of baseline/average performance using public information. Based on the sample baseline assumptions above, acceptable performance for a plain vanilla Web site would be 625,000 page views per month, per employee. Back-of-the-envelope brain teasing for a weekend afternoon.
