There’s more to it than just conversion rate.
For the past 12 years I have been a conversion rate fanatic, evangelist and downright pain to some people over conversion rates.
While my obsession has not been without good reason, for a while now I’ve been thinking that conversion rate is perhaps not the ultimate measure of a site’s performance that I thought it was.
The Problem With Averages
The first problem with comparing yourself to global average conversion rates is that they are averages.
Without seeing the bell curve it’s hard to gain any context of where the low or high performers are.
The other major problem is that you don’t know what their average order values were or how much it cost them to get those orders.
Without knowing any of this, any comparisons to global averages is pretty meaningless.
Who’s Better Who’s Best
As an example, say we have two sites.
Site A has a Conversion Rate of 20% and an Average Order Value of $50.
Site B has a Conversion Rate of 2% and an Average Order Value of $500.
At first take, you might say both sites were performing equally well. Both were making $1,000 for every 100 visitors.
But on second thoughts you would probably argue that Site B was the better performing site as it was ten times more effective in persuading each customer to part with $500 as opposed to Site A’s $50 per customer.
You could also argue that the cost and effort of producing and selling of 20 items is greater than that of just two items.
If we take this further. How easy do you think if t would be for Site B to improve its Conversion Rate from 2% to 4%?
That is, effectively doubling its sales to $2,000 per hundred visitors.
Not that hard you would think.
But what about Site A? How hard would it be for them to double their Conversion Rate from 20% to 40%?
Pretty hard you would assume. (I know some of you can’t even contemplate a 40% Conversion Rate.)
Don’t Get Fooled Again
So, after all that, Site B with its paltry 2% Conversion Rate is actually a much better performing website.
All of the above presupposes we use Conversion Rate as the ultimate arbiter of success. But as I indicated at the start, this may not be the best metric.
In the interests of forwarding this debate I’m going to propose a new metric of the Customer Profitability Value (CPV). This will be a measure of how much profit a site makes per 100 visitors.
(Orders) *(AOV – MC – PC) =CPV
- Where Orders equals the number of sales you make per 100 visitors. (Basically your Conversion Rate.)
- AOV is of course your Average Order Value
- MC is your marketing costs. How much it cost you to get those customers.
- PC is your production costs. (You can add whatever other costs you want in here if you really want to get obsessive.)
So for Site B we get
- (2) * ($500 - $100 - $150) = a CPV of $500 profit per 100 visitors
For Site A we get
- (20) * ($50 - $15 - $20) = $300 profit per 100 visitors.
Obviously I’ve used some arbitrary values there to illustrate the point that a site with a 2% Conversion Rate could very well be more profitable than a site with 20% Conversion Rate.
Both sites could have ended up being equal if I’d used pro rata costs, but as I said earlier I don’t believe this would be the case.
Also, the CPV is obviously a figure per hundred, and I could have carried the calculations further to get a dollar amount per single visitor. ($5 per visit.) However I don’t think that creates an accurate picture.
$500 is the profit you made. You did not make $5 profit off every 100 visitors; you made it off two customers in 100.
This is still early days and I may change the metric as I investigate it further, and based on the feedback I get.
So feel free to weigh in on this one
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