eCommerce and Revenue-Generating applications often worry about traffic; they think that if they don’t get enough they aren’t going to make any money. While there is truth to this statement, it is important to get good quality traffic first and foremost.
If your application receives 10,000 hits per week with a conversion rate of 5%, and a dollar in revenue per conversion, you’ll generate $500 per week. If your strategy is to rely on more users, to double this income you’ll have to increase the user base 100%, or 20,000 persons. Conversely if you want to double your income with the existing number of users, your conversion rate will need to be 10%. The path of least resistance becomes obvious when you compare the level of effort, time and risk to double the user base vs. incrementally increasing conversion.
This seems obvious, but there are many hidden factors. It costs a lot of money to double your traffic. You can’t just add more search engine optimization and expect people to show up. Marketing costs can be substantial in increasing the traffic, which affect the value of doubling your user base (don’t forget maintenance, development, scaling, etc.). Also, if your application depends on stickiness and returning users, you must be extremely satisfied with your existing UI , customer demographic and conversion rate, because all of these will remain constant. Note that there is a limited audience for you application, and eventually you will run up to a point that the “nth customer” will cost more to acquire than the average expected return from this person.
The cost of increasing conversion is much less. With a skilled and coordinated business, reporting and development team, a coordinated effort to create a process of business-metrics–to–targeted-development will lead to increases in conversion with much less cost devoted specifically to these increases. Further, benefits will be gained with respect to user churn as user experience becomes increasingly engaging, i.e. – users will find what they are looking for and find things on the site that are useful to them as well as profitable.
Once conversion rate is increased, the value of Marketing Campaigns targeted at new users increases exponentially, since users will find the application more useful, return more often, and finally create more revenue with each visit.
Targeted Development with A/B Testing
Targeted development through A/B and multivarate Testing will also increase the quality of the user that visits the application, since the it becomes more useful to them, they will look to other services that are tested and offered through it. By just using marketing dollars without tuning the site, you can risk just “sending anyone” to it, and you’ll definitely end up with higher churn rates and eventually run out of customers.
The most important part of increasing conversion and sales is quality traffic. If you have 100 hits a day, and a 5% conversion rate you are going to do a whole lot better than the person who gets 10,000 hits a day with an .5% conversion rate, because your costs are going to be less in equipment, development and bandwith costs, and the impact of your marketing dollars will be much higher.
A more real world use case…
This number becomes even more obvious when you start attaching zeros to it. Let’s say that the current site generates revenue per year of $25,000,000, and let’s say that your conversion rate is currently in a realistic range of 3%. If you have a target to increase your revenue by 50% for the next year, or $23.5 million, you will have to increase your continuous user base by much more than 50%. This includes factoring in churn, scaling, bandwidth and marketing costs, and incremental development matched to marketing.
A revenue increase by targeting conversion will cost much less. You’ll need to increase conversion in actuality less than 50%. Here’s why:
- As user-experience is ramped up, more users will “find the page” and stay.
- As marketing money is spent to find new users, the conversion rate increase will have a doubling effect.
- As conversion is ramped up, more users will convert more than once per visit. This is an ideal situation. AB Testing is directed towards this goal. No amount of marketing in the world can move this figure, but an increase in the number of conversions per visit can increase profits due to the fact that any subsequent conversion is basically “free”.
Target Everything and Leave Nothing to Chance
In actuality, it’s not just enough to maximize search unless you can know what the value of a search is. We need to know what the value of a shared-lead-bounty with Amazon, Dell, Expedia, or whomever you’re dealing with is as well. You need to know what a user is doing on your site. Is the browser from an Apple OS? Why would we have a “Dell” button on the page then? Is the user over 50? Why would you have ANY marketing on that page targeted to users under 35? Metrics will show the value of everything you may want to do, and A/B Testing will expose this faster than any other method.
The key to all this is simply to have excellent metrics, process, vision and stable environments. These variables cannot be changed dramatically while testing for conversion, and they must definitely be in place to do this effectively. The “lift” provided by a test must be “back-tested” if the risk is high. Couple this with new tests, and one can see how fast things can get out of hand if the team dedicated to making these tests is not well coordinated, and the platform unstable.
Finally, reporting at the crossroads to everything. It is vital to ensure that all required metrics are identified and captured, and that the reporting and business metrics teams can move with speed and accuracy. All the tests in the world aren’t worth a hill of beans unless you can determine their sucess, and when the sample for the test is complete to make valid comparisons. Times that are too short will result in inaccurate results, and times where tests are too long will result in too few tests being run in the time allowed, causing less-than-efficient optimization with respect to time/effort.
So it’s not easy, but it’s very valuable. This type of testing can be a godsend to a stagnant site with good traffic, and can also do wonders to an application that is ready to launch with limited audience but “needs tuning” before it is released to the world.