Tuesday, December 3, 2013

Why do you need CRO?

A recent client was trying to grow his e-commerce business.  He had tried many different marketing avenues including social media, Google Adwords, banner ads, affiliate marketing, re-targeting, advanced SEO, and email just to name a few.

After a number of months, he finally found and optimized a source of traffic that had a positive return on investment.  By this time he had spent almost a half a million dollars trying things that didn't work and his marketing budget was almost gone.  To make matters worse, the profit from this new marketing campaign wasn't enough to replenish his marketing budget AND grow the business.

Here's his numbers for a given month (rounded for clarity):

Marketing Spend - $40,000
Cost per Visitor   - $0.60
Total Visitors       ~ 66,000
Conversion Rate  - 2%
Average Sale       - $40
Revenue              - $53,000
Gross Margin    - $13,000

As you can see, he was only making an extra $13k each month off of a $40k marketing spend.

Now, since the marketing effort is [marginally] profitable (and so many others weren't), traditional [marketing] wisdom is to double your ad spend.  Since your campaign is profitable, theoretically you will double your profit.

However, there's a few unseen problems with this plan. 
Capital - You'll need double the capital to run double the campaign, and this money is likely allocated to other departments (or in my client's case, it was gone.) 
Audience - Assuming your first campaign only reached part of your audience, the cost of reaching all (or more) of your target audience is seldom linear.  Often the more of your audience you intend to reach/attract, the more expensive that opportunity becomes.  (This is like bidding for the #1 spot on Google Adwords vs being #3.)

This is where CRO comes into play in the marketing value equation.

Marketing Value Equation

CRO wisdom is to increase the conversion rate and average sale of already profitable marketing campaigns.  Even just a 30% increase in conversion rate and a 15% increase in average sale would triple the bottom line here.

The actual results were even better; a 70% increase in conversions and a 25% increase in average sale.  Here's what that looks like:

Inital Marketing Wisdom CRO Wisdom
Ad Spend $40,000 $80,000 $40,000
CPV $0.60 $0.60 $0.60
Visitors 66,000 133,000 66,000
Conversion Rate 2% 2% 3.4%
Avg Sale $40 $40 $50
Revenue $53,000 $106,000 $113,000
Gross Margin $13,000 $26,000 $73,000

There are three changes happening right now that make CRO a vital choice for any business that wants to grow.

Economic:  Advertising and marketing costs are increasing, including the salaries of those who are good at it.  This makes it harder and harder to get real profit from your marketing.

Social:  Social media isn't just for kids anymore.  As social media, like Facebook and Twitter, is transitioning to an older crowd, your customer experience (good and bad) is being shared by your target market to all of their friends.

Technology:  New tools for marketing and websites are flooding the market making the collection of visitor data easier than ever.  Unfortunately, it takes countless hours and a blood thirsty passion to stay on top of it all.  So many products, so much data, and so little time.

An effective Conversion Rate Optimization effort makes your marketing truly scalable and helps you grow your business.

If your traffic has peaked and your marketing has already been optimized, you need CRO.

Thinking about CRO?  Let's talk!