Over a century ago, the department-store magnate John Wanamaker observed, “I know half my advertising dollars are wasted. I just don’t know which half.”

Well, no more. With the help of DM principles we have the potential to know what works and what doesn’t, because whenever anyone does anything online, it’s recorded in a computer somewhere.

If you have a small to medium size website (<10.000 visitors a month) then the way to go is Google Analytics.

GA allows us to set up Conversion Goals. Conversion goals are pages on your site the visitor sees as a confirmation when completing a desired action and, being that this action is what your website is for, are thus very important. By setting up conversion goals you now know what drives conversions on your site.

Keep an eye on calculated performance indicators like:

• Conversion rate

The main performance indicator. The conversion rate tells you what percentage of visitors do the thing you want them to.

• Bounce rate:

The percentage of people who come to your site and leave right away. This says a lot about the quality of traffic you get from your online marketing campaigns. A sudden peak combined with low conversions often indicates a negative change in traffic relevance (i.e. bad marketing).

• Time on site & Page views per visit:

The average amount of time a visitor spends on your site and the amount of pages a visitor visits. A low number, combined with a low conversion rate can indicate irrelevant content or a bad marketing campaign. Conversely, a high number can indicate people not finding what they are looking for. It is best to look at these performance indicators on a channel by channel basis.

Your tracking becomes a lot more actionable when you can say: “While they both have a good CPA, display marketing has a lower conversion rate than SEM. This indicates that there still is some room to optimize. Let’s spend the coming period focusing on Display. ”

Other useful things to look at are; the bounce rate per page to find the weak links in your site and the number of ‘direct’ conversions (a big jump indicates a PR event, offline marketing or an increase of exposure online).

Also note the keywords visitors have used to find your site thru the ‘natural’ search results. Be sure to use the relevant keywords for your SEM. When it comes to optimizing individual marketing campaigns it makes sense to do that in the relevant ad servers, as cost are usually not imported in the web analytics solution and we want to optimize based on Cost per Action.

This way your web analytics become a way of comparing performance across marketing channels and optimizing your web site. When you are ready for a customized solution, the bigger players are Omniture and Webtrends.

Make sure to get a consultancy to advise and implement your choice.