Successful ecommerce marketing is essentially about driving up three key metrics – your site’s conversion rate, its traffic and its average order value. But do you realise just how big an effect even very small increases in these metrics can have when properly combined?
Advantec’s Director Andrew Brittain looks at how small uplifts can create exponential revenue growth…
Traffic, conversion rate and average order value: If you have an ecommerce site but are not actively working to drive up those metrics in the right way, you’re missing out on the leverage that just tiny incremental movements in each of those figures gives you to significantly increase your revenue.
These three metrics work together to produce a ‘compound’ effect that has a dramatic impact on a site’s revenue, disproportionate to what you might expect by looking at the figures in isolation from each other.
What do you think happens to your digital revenue if you increase your website’s traffic, conversion rate and average sale value by just 1% each?
Do you think an extra 1% on each of those three metrics adds up to 3% increase in revenue?
No it wouldn’t! Try more like a 100% increase!
For the un-initiated, your conversion rate is the number of your site visitors who actually buy something from you (expressed as a percentage). Your average order value is the amount that each paying customer spends with you on average. Figures are usually measured over a calendar month.
Take the following imaginary example of a website with 30,000 visitors per-month, a 1% conversion rate and an average order value of £100 per-customer…
You can see how by increasing visitors, average order value and conversions by just 1% each has resulted in a 104% increase in monthly revenue!
The majority of extra revenue comes from the increase in conversion rate, which is an extremely valuable lesson. So many retailers focus on pushing traffic to their sites and invest the vast majority of their marketing budgets in traffic generation without first considering their conversion rates.
By focussing on improving your conversion rates first, before investing in traffic generation, you make your marketing budget work much harder for you. What’s more, conversion optimisation work often costs less than traffic generation – and you can see from the table above the impact it can have.
Conversion rates are typically the hardest metric to improve and a 1% rise in conversion rate can be seen as a much greater achievement than a 1% rise in traffic or average order value. Indeed, if your digital marketing efforts only resulted in a 1% traffic rise, you might be pretty disappointed – so what happens to these figures if you achieve a more realistic increase in traffic figures – say 10%, along with a 10% rise in average order value?
Now the figures start to look more interesting! By pushing up your visit numbers by 10%, for instance with an effective SEO or PPC strategy; by increasing your average order value by 10% with some targeted up-sell or cross-sell promotions / incentives – and by squeezing an extra 1% out of your conversion rate, you’re looking at a 140% increase in monthly revenue. Our imaginary site goes from £360k turnover to almost £900k!
With that kind of growth, any sensible retailer would be looking at re-investing some of that profit in more of the marketing work that got them their 10% uplift in the first place and growth continues exponentially.
This is what we work with our clients to achieve – finding opportunities for relatively small, quick, easy wins which, when combined together, generate expotential revenue growth. What sort of numbers could your business achieve with a bit of this kind of treatment?