In both the offline and online world, when it comes down to it, there are really only three levers you can pull to increase your revenue.
In the online world, I often see huge focus on traffic acquisition and optimisation of the marketing budget for quality traffic but little to no focus on AOV and Conversion rates.
While traffic acquisition is important, its just part of the picture and just one of the levers on your control panel. In fact the three levers are linked together and neither one should be viewed in isolation. Think of the mix of air and fuel in an engine or the trim levers, rudders and flaps on an aero-plane.
Acquisition costs your business either in time or in money.
Let’s say you currently pay $5 per click for around 50 visitors a day. Yes, that may be high or low for your particular category but the concepts are more important than the numbers here. In our scenario your AOV is $100 and your average Conversion rate (site wide) is 5%. In this ‘as-is’ state the adwords campaign is just about breaking even at $250 spend. When we factor in Cost of sale, this campaign is most likely to be running at a loss.
So what if we pull some of those levers? What combination of levers will give us the outcome we are looking for? Supposing we double our daily budget and this results in a corresponding doubling of traffic. In this scenario, we may have more customers but no increase in short term profit. $500 out $500 back.
If we were to increase Conversion rate alone by a small 1% increase we see a profit of $50.
If we were to increase Average Order Value (AOV) through similar product offers, retargeting or ancillary offers by just 10% we also see the campaign restored to a modest profit.
Where this gets really interesting in when we apply all three levers together. Here we are doubling the traffic budget but more than doubling the traffic we can buy. The extra kicker comes from the fact that our improved AOV and conversion rates lower the cost of acquisition, in this case by 10%. Over all the campaign is far more profitable, over 5 times more profitable than traffic alone in fact.
Obvious Caveats :
Obviously, you will want to go away and model this on your own data and see what works for you, but you will see when building out your revenue improvement plans, that each area deserves attention.
Dave Birchall is a Sydney digital marketing and sales expert with a love for conversion rate optimisation, eCommerce and online growth. He is accredited in Google Analytics, Tag Manager and Adwords among other things. He has owned and run large and small ecommerce businesses in Australia, New Zealand, the US, UK and China.
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