Fair warning: today’s post requires you to be competent with spreadsheets.
In our previous discussion of moving averages, we talked about how moving averages tell us when our daily and weekly web analytics numbers fall below our 4 and 13 week moving averages, we need to hit the gas. What if there were a way to determine precisely when it’s time to really hit the gas, when it’s time to sound the alarms?
Fortunately, there is. In the world of technical investment analysis, there’s an indicator called the MACD, the moving average convergence/divergence number. It’s the difference between two moving averages. The MACD was created by an investor named Gerald Appel in the 1970s as a way of telling not only when a stock was changing direction, but how quickly. Today, we’re going to move the MACD into web analytics.
Let’s start with some review. Here’s a chart of a website using exported weekly Google Analytics data, including its 4 and 13 week moving averages. Is it healthy?
If you answered yes, you’d be generally correct. The blue line of weekly visits is generally above the red line, which is the 4 week moving average, which in turn is generally above the green line, the 13 week moving average. By itself, this chart contains enough information to know whether your site is doing well or poorly.
What this chart doesn’t show is how well or poorly. For that, let’s first turn to just the 4 and 13 week moving averages. Remember that the 4 week moving average effectively summarizes the last month – how well your site has done over the month. The 13 week moving average effectively summarizes a quarter. What we want to look for are the points where the 4 week average dips below the 13 week average, because that alerts us that there is a rough patch, where growth flagged:
In this chart, there are 4 periods where growth clearly flagged. If we go back to our data and in our spreadsheet, we calculate 4WMA – 13WMA, we get a number that indicates how much the 4 week average is above or below the 13 week average.
The MACD is a simple number to interpret: in an ideal situation, you always want it to be above zero. If your MACD is negative, your website is in trouble.
Let’s visualize this by charting out the MACD with a simple line graph.
See those areas in the red boxes? Those are areas where growth was negative, where the website simply wasn’t doing well. Look at week 67, the far-most right week and the fourth red box. We can see that we’re about to enter a period of negative growth. Sound red alert! This is the warning indicator we’re looking for, the sign that we need to hit the gas really hard to avoid dropping below zero if we can. This is where you break out your various emergency response toolkits, like PPC advertising, email marketing, and anything else you’ve got that will drive attention.
Why is it so important to hit the gas really hard at those critical times? Look at the previous red boxes. Some of them stretch 8-11 weeks – that’s nearly a full quarter of the calendar year. Like an economy or a stock, your website’s traffic has momentum, and negative momentum is just as hard to recover from as a downward declining stock. Reverse the momentum before your MACD goes negative and growth won’t suffer. Let it go negative for 8-11 weeks and you’re going to have a bad month or a bad quarter.
The MACD is an elegantly simple number to keep an eye on. Keep it above zero, and your website audience is growing. Let it fall below zero, and your website audience is shrinking. Since everything else in digital marketing is contingent on that audience, it’s vital to keep your audience growing. Try applying the MACD calculation to your Google Analytics data and see how your website is doing!
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