Conversion Improvement – The Boring Mathematics

Lets take an example and work through the mathematics.

Lets say that:

• we run a site that sells widgets and that we make £25 profit on each sale
• that we are paying £0.25 per click on Google Adwords
• that we have a conversion rate of 2%
• that we get 5000 visitors each week.

Our weekly profit figures will be as follows:

• Visitors: 5000
• Orders recvd: 100
• Total Sales Profit : £2500
• Cost of Traffic : £1250
• Net Profit : £1250

Which is OK, I suppose, but it could be better.

Lets Get More Visitors

Obviously, we can improve this by increasing the number of visitors to the site.

So lets assume we double the number of visitors by spending more on Adwords.

Normally, this would need us to pay a higher cost for each click, but lets assume that some twist of circumstances allows us to buy them at the exact same price, and we get twice as much traffic.

• Visitors: 10000
• Orders recvd: 200
• Total Sales Profit : £5000
• Cost of Traffic : £2500
• Net Profit : £2500

Neat, Twice the profit!

But there is a flaw or two here.

Firstly, we do not normally get the chance to get more Adwords visitors at the same PPC cost – if we want more visitors, we need to have our ads appear higher up the ranking, and to do this we need to pay more per visitor.

Secondly, there is an upper limit to how many visitors we can obtain through Adwords – this limit is set by the number of people who actually search for our target phrases and also whether our site can still make a profit by paying the higher charge for the extra adwords traffic.

In short, if we could easily buy that extra traffic and still make a profit we should already have been doing it.

If we are doing our job correctly, we are already buying the correct amount of traffic to get maximum sales whilst still remaining profitable.

This is not an either/or situation – you do not choose between buying more traffic or improving your conversion rate. Improving your conversion rate it what you have to do before you start buying more traffic. In fact, you should have been doing it from day one, so….

Lets Improve The Conversion Rate

If we want to double profitability, we need to double conversion rate, right?

Actually, no, in the above case we only need to improve conversion rate by 50% !

Here’s the maths:

Using the same figures as example 1, but with a 3% conversion rate (instead of 2%)

• Visitors: 5000
• Orders recvd: 150
• Total Sales Profit : £3750
• Cost of Traffic : £1250
• Net Profit : £2500

Hey, what happened there?

Simple, we got 50% more sales but at the exact same cost as acquiring 100 sales.

50% more visitors led to 100% profit increase.

But there is more!

Improving Conversion Rate Allows Us to Pay For More Visitors!

Now we are more profitable per visitor, we may decide to pay a higher cost for the Adwords clicks in order to get more traffic. Depending on how competitive our target phrases are, we may be able to get another 2000 or so visitors and still retain a healthy profit per click – so lets see what happens if we do.

If we work on the assumption that we now have to pay an average of £0.30 per click to increase Adwords visitors from 5000 to 7000 visitors, we get the following.

• Visitors: 7000
• Orders recvd: 210
• Total Sales Profit : £5250
• Cost of Traffic : £2100
• Net Profit : £3150

See what happened?

We ‘leveraged’ an increase in conversion rate from 2% to 3% in order to increase profits from £1250 to £3150

Thats an increase in weekly profits of over 150% !

 

So what”, some of you may be saying, ‘we don’t use Google Adwords, all our traffic is from the normal free search results, so that costs us nothing”

Sadly, this is not true – the same broad principle applies – if you want to increase visitors to your site through ‘search engine optimisation’, you need to spend money too. Usually this involves a an upfront cost and a monthly budget, and the more visitor traffic you need, the more you need to spend per visitor.

If you don’t believe this, try asking the companies who ranks No.1 on Google for ‘Poker’ or ‘Mortgages’, how much per month they are paying to keep that ranking.