hen you first open your new site, hits will be slow in coming (unless you are an expert at generating them). And sales will be correspondingly scarce. Even so, you need to be checking your stats and sales with care. The number that matters most to you is ...
The Value Of A Hit
By this, I mean, what is a hit worth to you? (By hit, I mean one unique visitor or user session.) Compute this number by dividing total sales amounts (gross profits) by number of hits. That is, find total earned for say a month. This includes your part of sales of products produced by others, commissions on sales, and so forth. Your stats will provide number of unique hits.
For example, if you have a gross of $200 for month, and 1000 hits, value of a hit is 200/1000. Which is 0.20 or 20 cents. If gross was only $50, then this number is only 0.05 or 5 cents.
With a mature site routinely generating hits, this number is not likely to vary markedly from month to month. Even so, a good plan is to include in your results a 3 (or 4) month moving average. For example, given Jan: $0.30, Feb: $0.20, and Mar: $0.10, add these three numbers and divide by 3. (30 + 20 + 10)/3 = 60/3 = 20.
The reason this helps is that looking only at monthly data, above looks like an ugly downtrend. The 3 month average eases that downer feeling. Equally important, it helps you keep from getting too excited about an apparent up trend.
Suppose value for April jumps to $0.40. For new average, January is excluded; you look at only last three months. This gives (20 + 10 + 40)/3 = 70/3 = 23.33 which is roughly 23 cents. In considering 23 cents as opposed to 40 cents for month, there is a more reserved view of sudden jump.
I chose numbers here to make things easier to follow. Actual results for your site will look quite different. And since computations, while simple, can be tedious and prone to error, most who take this sort of thing seriously use a spread sheet program, such as Excel.
Why These Numbers Matter
The value of a hit is fundamental to what you can afford to pay for advertising. And you'd like to stay a bit under this figure. If ad produces only this value per hit, campaign was a fizzle, for no profit was made. (The exception would be value of new customers as subscribers to your newsletter, those who return to purchase other products, and so forth.)
There's a lot of trial and error in testing ads, but ins and outs of it are off topic here. For our purpose, suppose you have a well tested ad that can be expected to generate 25 hits in 1000 impressions. If value of a hit to you is 50 cents, then you can expect a gross of 25 x $0.50 or $12.50.
What this means is you can afford to pay up to $12.50 CPM (Cost per 1000 impressions) provided hits add to your subscriber list or returns for other products. If you expect only a one time sale, you probably will not want to pay more than $6.25 CPM, so that half of revenue is immediate profit.
With an established site, even given troublesome variations month to month, it is a fairly straightforward matter to decide what you can afford to pay for advertising. Things are different, though, for ...
New Or Small Sites
Initially you just don't have enough hits or sales to produce numbers that make any sense at all. There is likely to be large variations each month. Even so, it's best to begin this kind of tracking even when only getting started.