It’s a question that shopkeepers have asked long before there were things like websites. Or digital revenue models.
Where should I spend my money; spend it on marketing or on making the store nicer?
Obviously we need both but historically companies have focused on buying more traffic, buying more traffic, buying more traffic. And while we need to drive traffic to the store. we also need to convert shoppers once they are in our store. Lead generation, fundraising, recruiting, sales; all of these can be measured in terms of conversion. So when we talk about conversion, that’s what we’re talking about.
The secret here is to look at Return On Investment (ROI) as a percentage because it shows us that simply buying more traffic is not always the wisest business decision (all this coming from an old advertising guy, no less).
Here’s why: Let’s say, for illustrative purposes, that our traffic generation programs yield an ROI of 100%. Every month we spend one dollar to make two dollars. We know what we can expect month-over month.
It looks like this:
But let’s say we have a sales conversion rate of 2%, so for every 100 people who come to our site, 2 of them buy from us.
Now let’s suppose we improve something on our site, say, the checkout process and we increase our conversion rate from 2% to 2.3%.
It doesn’t seem like a very big lift, does it?
Here’s the big a-ha moment: the traffic percentage is for a single month. The conversion percentage is 2.3% of an ever-increasing, month-over-month number. Unlike traffic percentages, our conversion percentage increases:
Buying traffic is a one-time cost with a one-time benefit. Increasing our conversion percentage is a one-time cost with an ongoing benefit that increases month over month. It is entirely possible to see a yearly ROI of over 1000% from conversion optimization and that is why we continually look for ways to improve the customer experience. It’s not just a buzzword, it’s good business and it can tell us where to put our money when budgets are tight.