Conversion rates are a metric, which alone deceives you into believing that your business is earning more money. Without pairing it with other metrics creating an efficient sales and marketing funnel, you will suffer and I’m here to prove that.
Optimize your conversion rates is what we hear. A whole business area, Conversion Rate Optimization, is dedicated to squeezing the most out of our websites to get sign-ups, registers, or purchases, it depends on your goal.
Change the color of your CTA, use power words in your copy, and focus on content marketing to generate traffic – the amount of tips is piling up in yet another article as we speak (or read).
If you want to increase your conversion rates, sure, here are some sources: ConversionXL gives you 13 actionable tips to boost conversions, and Entrepreneur provides 39 quick ways to improve your rates.
Most of them kind of make sense.
But they won’t help you make money.
Or should I say, high conversion rates alone do not equal money.
Conversion rates misconceptions
The articles on the web make a compelling argument why you should get interested in increasing your conversion rates: it equals more customers, gives an edge against your competition, and increases profits or the possible customer base.
The promises look so good that it’s easy to enter tunnel vision and ignore other metrics. This provides a distorted image of how your business is doing, as very often an increase in one metric might be a result of a decrease in another.
Your website in May received 400 visits per day on average. Out of these 400 people 60 buy your product = it equals a 15% conversion rate.
However, you change your direction and rebrand your website. Your traffic equals 240 and you have around 18% conversion rate – wow, congrats! You did it, more conversions! It probably means that you have more sales…
No, you don’t. 18% out of 240 means that only 22 people bought your product. It’s less than 60.
Your Ecommerce store brings a sale every 4 visits of a given customer – 25% conversion rate.
However, you learned that including some content marketing might bring more people to your store. You open a blog and voila, more people are swarming to your website. But the stats look terrible – they buy once every 10 visits. 10% conversion rate looks bad on paper, yet in reality the change is good, as you are receiving more valuable traffic.
There are other obstacles that make conversion rates unreliable alone. Andrew Rouderian describes 5 conversion traps coming from his experiences. For example, even though his company had traffic, they couldn’t sell outside USA, that’s why the conversion rates looked low. Also, the traffic from their mobile didn’t convert because of their bad mobile site.
There are many traps that can lead us into the false territory of believing only in the God of Conversion. Psychology and gratification make it even worse – conversion rates often give us that warm fuzzy feeling that we did something good, and we begin neglecting other factors that are as much, if not even more important.
How to analyze Conversion Rates properly
Here I’ll give you tips for both SaaS B2B and Ecommerce store owners.
If you are an Ecommerce owner…
…you need to realize that your revenue is calculated with 3 factors:
- Conversion Rate
- Average Order Value
I heard it already – What’s Average Order Value?
Average order value (AOV) is the average amount of money spent by a client per order over a certain period of time. Therefore, you can calculate it by dividing your total revenue by the number of orders taken total.
For example, you got 143 orders in March, and your total revenue is $13675 = it means your Average Order Value is around $95. Nice!
However, this is a gross simplification for the sake of the argument and you need to remember to subtract your expenses, costs of goods, shipping and such to get a better overview of how much you earn per item sold.
There are many different tactics to increase this metric – basically, improve your sales process and marketing. For example, sell items in bundles, establish free delivery thresholds, allow for donations, et cetera. KISSMetrics goes over the most popular methods to increase AOV in their article about amping up your Ecommerce – give it a read, as some examples are more often than not overlooked, yet effective.
Coming back to calculating your revenue, you must consider all of these 3 metrics, as they are very closely connected:
With the increase of conversion rates (e.g. thanks to your new, cheaper product), your average value goes down – you need to track the differences between these, as a gap too large might be negative for your sales.
See, due to an increase in traffic, your conversion rates and AVO might go down drastically, but in the end you can end up with a higher revenue:
10000 visitors per month * 15% conversion rate * $65 AVO = $97500
34000 visitors * 9% CR * $33 AVO = $100980
As you can see, in the second formula the conversion rate is lower, oh no. Following only one metric can give you a false view of your total revenue – be wary of this.
If you work in B2B and SaaS field…
… the situation is slightly different:
Every step in a funnel is a conversion.
This area requires a well-established sales funnel. It’s a process that takes potential customers through several stages, leading them to a successful sale. It starts wide, but gets narrower through various procedures.
A view of a funnel from the top.
However, they need to be treated separately, and that is why it is a mistake to optimize just one stage – you need to optimize all stages or your funnel will be inefficient.
If your conversions are high, but you are not getting even a slight increase in your revenue, then it means that your funnel is leaking and you are flooding people downstairs. This is the signal that you need a SaaS funnel optimization Noah to guide you – here are tools that you can use for fixing your funnel.
At For Entrepreneurs, David Skok gives a perfect guide how to fix the most popular funnel holes. If you need an entire encyclopedia of how to turn conversions into money, this is your must-read. I highly recommend getting through the link, as it provides invaluable knowledge – thanks David!
However, if you want a lighter source of inspiration when it comes to patching up your sales, Brian Carter presents 5 most common funnel mistakes in businesses. First of all, you shouldn’t include processes that have too many steps, as they dilute your stats and give people more opportunities to drop out. Then, you need satisfactory traffic, gained through efficient content marketing or SEO. Finally, you need to juice up every stage with many ideas how to make people convert and test the solutions.
Look for more
I think you realize that chasing conversions leads you into a blind spot. You need to have a better view over your business – you need to track more metrics. If you focus on B2B, keep your sales funnel tight, as even a small leak might result in a total waste of your efforts.
Start from the top and polish it to the bottom, and you’ll get the hang of it. Sure, in the beginning it is leaky, but the faster you notice the holes, the better. Grab the duct tape and get to work!