Ferret Blog

• 
  Written by
  Mark Bolitho

  The importance of conversion

  22nd Sep, 2008 @ 11:29 am

  It's been a long time coming but it seems the thinking may be changing. For years our industry has been fixated on visitors -- success being measured by how many people visited a website.
  Strange, that it's taken obviously very intelligent retailers such a long time to realise that yes, visitors are indeed welcome, but it's how many of them that end up as a customer that really counts.

  There are a multitude of e-commerce sites out there that pay no attention to the conversion process at all, it seems. Usability testing may be confined to friends and family, or not undertaken at all, but certain 'norms' mean that people just accept what's there because that's just the way it's always been, and as such, don't question the fact that they are being asked to 'Create an account' before checking out, or even adding to basket in some cases.

  It all seems all so very logical to us -- we've been extolling the virtues of conversion testing for over 12 months now, and have been practising it successfully too.
  Technology now allows traffic to be split and varying testing techniques to be applied to websites whether e-commerce or lead-generation, but there are too many 'normalised' e-tailers who still refuse to acknowledge that it's possible for things to be improved.

  Let's stick with e-commerce sites for a moment -- it's what we know best, after all.
  Return on marketing spend is king here. I was speaking to someone recently who told me that he'd had his marketing budget cut by £100k. Music to my ears!
  In such challenging times there's a need to become more efficient, to maximise return and so the old thinking needs to be discarded -- in fact the old thinking is no longer possible when marketing budgets are slashed because the way the old thinking worked was to spend more on marketing to make more money. It seems perverse, in fact, that when a company needs to become more profitable to stay ahead of the game the first thing to suffer is marketing, but it's a futile exercise without doing something to increase the return on the existing spend.
  So in a time when companies need to be more profitable or else perhaps they'll disappear, the answer is to increase conversion rate.

  Consider the following...
  Your average order value is £50, and you spend £500 for every 1000 unique site visitors.
  From these unique visitors your conversion rate is the Internet average of 2% bringing you 20 orders. 20 orders x £50 AOV = £1000 revenue, for £500 spent.

  If you increase your conversion rate by just 1% you'll get 30 buyers per thousand visitors; that's 30 x £50 AOV = £1500, for £500 spent.
  So, with a very modest increase in conversion rate, for the same marketing spend you get 50% more revenue, and a significant rise in profitability.

  To get the same 50% rise in revenue through marketing you'd need to attract an additional 500 visitors each month at a cost of £250 (1500 visitors x 2% at £50 AOV = £1500). That's £1500 revenue, but you spend £750 so no increase in level of return on investment.

  So, by increasing your conversion rate you can increase your level of profitability dramatically, whereas increasing revenue by upping marketing spend doesn't help profitability at all.

  I'll be discussing some of the other points above in future posts, and hopefully we can help people avoid making some of the more damaging mistakes that are all to common.

  Tagged in: General

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