“Never confuse motion with action.” — Benjamin Franklin
This post goes out to all you eCommerce mavens. If you already have P/L responsibility, then share this with your team to help them aim at the proper goals.
If I had a dollar for every vendor or affiliate who promised to increase my conversion rates, I’d have long since retired to the Bahamas. That’s all you hear about: conversion conversion conversion.
But all too often in eCommerce, efforts that boost conversion end up tanking the business. Let’s explore how NOT to shoot yourself in the foot.
Conversion Rate is one of those intermediate metrics that sounds all warm and fuzzy but can easily get you into trouble when viewed isolation — as so many marketers do.
“The only point of revenue is profit.” — Anonymous P/L Manager
That quote is a BGO: a Blinding Glimpse of the Obvious. But most eCommerce marketers are missing it completely. Here are a few Google search result stats to underscore this point.
- “Conversion rate” searches (filtering out currency conversion) return 12,800,000 results.
- “Revenue per visitor” searches return 104,000 results (120 times fewer).
- “Profit per visitor” searches return 52,500 results (240 times fewer).
- “Margin per visitor” searches return 2,460 results (5000 times fewer).
Hint to you ambitious growth engineers: focus on MPV and you’ll be in rarified company.
The easiest way to boost conversion is to throw a discount offer out there (coupon, free shipping, whatever). This is, by definition, trading margin dollars for revenue dollars. If you do it very carefully and tactically you can increase margin dollars, but that is by no means the most common outcome. (Careless couponing is an awesome going-out-of-business strategy.)
Let’s look at what’s inside the better metrics.
Revenue Per Visitor (RPV) = Conversion Rate x Average Order Value (or Orders per Visitor x Revenue per Order). If your promotion or other conversion tactic increases RPV, that’s a good start. But it’s still short-sighted.
For purposes of this discussion, let’s consider Profit and Margin to be synonymous.
Margin Per Visitor (MPV) = (Revenue - Cost of Goods Sold - Ad Expense - Promotional Expense) / Unique Visitors
Note that these two metrics are per visitor, not per customer. So conversion rate is clearly important, but it’s not until you fully burden the program revenue with all the associated costs that you really know how to feel about the outcome.
Yes, that’s another BGO. But is that how you’re measuring your test results?
“The only point of investment is return.” — Anonymous CFO
In order to really take eCommerce test metrics to their proper conclusion, we must get all the way down to ROI. That’s a much more nuanced discussion embracing customer lifetime value that I’ll save for another post.
In the meantime, and depending on the exact nature of your business, Margin Per Visitor can be a decent short-term proxy for long-term ROI.
Let the rest of the crowd dwell on lifting Conversion Rates. Focus instead on lifting the fundamental vitality of your business and you’ll blow their doors off.
Please feel free to comment or contact me with feedback at scott @ growthagent dot biz.
Tags: eCommerce, conversion rate, online marketing, web analytics, P/L management