New Users vs. Increased Monetization

eCommerce and Revenue-Generating Site stakeholders often worry about traffic; they think that if they don’t get enough they aren’t going to make any money. There is a little truth to that, but more important is getting good quality traffic before you go after lots of users.

If you get 10,000 hits per week with a conversion rate of 5% with a dollar in revenue per conversion, that’s $500 per week you’ll make. If you rely on more users, doubling your income means doubling the number of hits, which means increasing your user base to 20,000. If you want to double your income with the same number of users, then your conversion rate will need to be 10%. Pretty simple, right?

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.).

The cost of increasing conversion is much less. Provided that reporting, development and consumer experience are fairly stable cost centers, using these two bodies hand in hand to create a process of solid 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 churn as user experience will be more pleasant, 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 for us. Once conversion rate is increased, the value of Marketing Campaigns targeted at new users increases exponentially, since users will find the site more useful, return more often, and finally create more revenue with each visit.

Targeted Development with AB Testing

Targeted development through AB Testing will also increase the quality of the user that visits the site, since the site 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.

The most important part of getting conversions 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 almost nil conversion rate. In addition, it’s going to cost you in the long run to pay for additional bandwidth or cover the garbage traffic.

In the Real World…

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 trade with Amazon, Dell, Expedia, etc 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 ABTesting will expose this faster than any other method.

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