Increase Revenue 1,500% with Conversion Rate Optimization

Picture this. You have a dream of opening your own store. Not just any store. You dream of opening a 100% organic pet food store. Not organic in the buzzword, bullshit sense like many pet food suppliers are creating. We are talking such high quality that both Fido and you could live comfortably on the stuff.

Your dreams are coming to fruition. The bank approved you for the loan, you acquired your product, and found the perfect location.

Today’s the big day. You flip the sign on the door from “closed” to “open” for the first time.

Instead of your aisles flooded with eager customers and the ring of your cash register singing through the crowd, you watch two customers walk in. Then, walk out. Another comes in a few hours later.

Throughout the first day, you see a total of 30 potential customers with only three sales.

On the second day, you rearrange some of the products in the store, offer some free treats to the pet owners coming in and put up a few signs in the store that clearly show how truly “organic” your product is.

At the end of the second day, you run the numbers. 32 potential customers came in the store, but on this day, you hit 7 sales! A 130% growth from day one.

Fueled by your success in the second day, you spend the evening pondering how to boost sales again.

That’s when it hits you.

Boosting in store transactions is good, but this combined with getting more customers to walk in the store would be great.

On the third day, you walk out to the sidewalk median in the middle of the road and put up your newly purchased sandwich board sign. The sign features bright colors with your store name, the words “Organic Pet Food” and “Free Dog Treats!”

On this day, the store garners 50 customers and 15 sales.

Elation!

In just 2 days you achieved a 400% increase in sales.

First, by getting more sales from the customers you already had in the store, and second, by taking a step up in the sales funnel and getting more customers into the store. Together, these two factors generated a compounded improvement.

This is the power of what digital marketers call conversion rate optimization.

The Power of Conversion Rate Optimization

In the simplest terms, conversion rate optimization is the manipulation of variables to garner a desired action at a greater frequency.

To help understand and apply the dog food example to a larger idea, I’ll use the following scenario.

ABC corp. is a reseller of widgets. ABC’s average customer lifetime value is $1,000 with an average marketing reach of 1,000,000 people per month. ABC leverages a four staged marketing funnel that customers fall through as they go from not recognizing the brand to becoming a customer. The four stages of ABC corp’s funnel are awareness, clarity, consideration and acquisition. Between each stage of the funnel there is an average conversion rate of 5%.

Single stage conversion rate optimization

Single stage conversion rate optimization is what most people think about when they hear the term “conversion rate optimization.” This approach consists of adjusting variables to get more people to take the final step of purchasing. The problem here is that customers don’t wake up with a phone in their hand ready to buy.

Customers usually spend weeks or months researching on their own before purchase.

A stereotypical test with single stage conversion rate optimization would be testing a red “Buy Now” button on your ecommerce store against a blue one.

Improvements in conversion rate at the point of the buying decision leads to a matching increase in revenue.  

For example, a 100% increase in the conversion rate leads to a 100% increase in revenue, and a 300% increase in the conversion rate leads to a 300% increase in revenue. 1:1 increases.

If ABC increases the conversion rate by 100% they double their monthly revenue. Sounds fantastic, right?

The problem is, while achieving a 10% conversion rate is very possible, how likely is it that it doubles again? And again?

While this model does result in a growing business, it’s not likely to result in serious, sustainable market growth.

Multi-stage conversion rate optimization

The real opportunity in conversion rate optimization comes when it is applied to a multi-stage funnel approach. This approach attempts to marginally improve the conversion rate at each step of the sales funnel or the “customer’s journey,” instead of only focusing on the cash transaction.

Minor improvements in multi-stage conversion rate optimization lead to major, repeatable business growth.

In order to understand the full potential of this approach, you must first understand the principles of a multi-stage sales funnel.

In terms of ABC Corp, the funnel leverages the following points starting from the final point of the funnel and working towards the beginning:

• Before customers choose to buy, they usually select ABC from a group of competitors (Acquisition).
• Before customers can select ABC from the group, they research and narrow down their options (Consideration).
• Before ABC can be added to the short list of options, the customer needs to know what ABC sells, and what makes them unique (Clarity).
• Before they can learn what ABC sells, they need to know that ABC even exists at all (Clarity).

By understanding the customer journey through these stages, a marketer can manipulate a significant number of variables at each stage to try to increase the volume of people that advance to the next step (just like the owner of the pet food store did in the opening example).

As a result, compounding growth takes place, building momentum with each successful test.

Using this approach at ABC, let’s look at what happens if we only increase our conversion rate by one percentage point at each of the four stages instead of doubling it like we did in the first example.

Instead of 50,000 people becoming aware of the brand, there are now 60,000 people that we can attempt to establish brand clarity with.

If we accomplish another 1% conversion rate at the clarity stage of the funnel, we’ll have 3,600 people that are aware of ABC Corp, and understand that it sells widgets instead of 2,500 people.

A 1% improvement at the consideration stage of the funnel leads to 216 people considering buying the widget instead of only 125 people.

One final 1% improvement at the acquisition stage of the funnel means that 13 people are buying widgets instead of only 6.

By leveraging the multi-stage sales funnel, taking advantage of compounding optimization and achieving the 1% improvement at all four stages, we achieve a 107% increase in revenue.

This 107% improvement was accomplished with just a 1% increase at each stage of the funnel. A 1% improvement is small enough that it can be repeated again and again.

Increasing one more percent to a 7% conversion rate at each stage of the funnel results in a total revenue increase of 284%. That’s $24,010 in monthly revenue instead of $6,250.

Remember the 100% increase in conversion rate that we used in the example with single stage conversion rate optimization that led to 100% increase in revenue? The 1:1 improvement? A 100% increase with the multi-stage conversion rate approach leads to a 1,500% increase in revenue, or $100,000 in monthly revenue.

As demonstrated above, using the multi-stage funnel approach to conversion rate optimization results in attainable dramatic growth with simple, small improvements in the conversion rate.  

What does this mean for your business?

Understand the marketing funnel

You can’t make incremental improvements across an acquisition funnel if you don’t have a firm understanding of the funnel itself. Your marketing team should understand which stages of your funnel each initiative is targeting and what kind of messaging motivates your customers to advance to the subsequent stage.

Establish detailed tracking

In order to harvest conversion rate wins, you need to know which ones are working. Your marketing team should be using UTM parameters to differentiate a/b tests and to label initiatives by the stage of the funnel. The days of John Wanamaker’s uncertainty about which half of his advertising is working is long behind us. Hold your marketing team responsible!

Consider a new approach to budget discussions

The next time you sit down to discuss your marketing budget, discuss your current effectiveness. Maybe you should be carving out a budget for conversion rate optimization instead of pouring more funds into your current channels.

After all, consider all the extra funds that you’ll have for advertising after a successful conversion rate optimization experiment.