You run a business. You sell things online. It’s not rocket science. Yet, most make it way more complicated than it needs to be. In fact, it all comes down to one simple formula:
Traffic + Conversions = Profit
If you are like most online entrepreneurs, you’re probably obsessing about traffic without giving conversions a second thought. But what most website owners don’t realise is that their profits (what they actually can take home) can be multiplied many fold by giving conversions the attention it deserves.
Let us explore this by going through a very simple example.
Let’ s assume you sell a digital product that sells for $100. This example involves no cost of goods sold. The $100 represents pure profit. If you are selling something that does involve production or mailing costs, just pretend that this $100 is the profit after you’ve subtracted these costs.
After you’ve checked out your traffic numbers, and discover that out of every 100 people that come to your website, you will make one sale, on average. So you currently have conversion rate of 1% (1/100). Simple so far?
Now, let’s just say that you are spending $90 per month to get these 100 people to visit your site (using whatever marketing tactic floats your boat).
This is what your profit will look like at different levels:
As you can see from this table, for every 100 visitors you get, you are making one sale, at a profit of $10.
Now, assuming you can scale this traffic at the same cost, 1,000 visitors will mean a profit of $100 to you and 10,000 visitors will mean $1,000, and so on.
Now let’s say you decide to focus your attention on improving the conversion rate on your website to 2%.
Let’s see what happens next:
Now, for every 100 clicks, you are making $110 in profits instead of the dismal $10. For every 1,000 visitors, you are now generating $1,100 instead of $110. If you are playing at the 10,000 visitor mark per month, instead of making $1,000 per month, you are making an extra $11,000. That is an extra $132,000 per year!
And it doesn’t end there.
Four reasons to increase your conversions
Let’s go through all the advantages of an improvement in conversion so you can see the profound implications this can have on your business.
First of all, you are not spending a cent more on the existing traffic you have, and by doubling conversions you are multiplying your profits. In fact, to get the same result simply by focusing on traffic, you’d have to pay for ten times the amount of traffic assuming you could even get it.
Second, if you can grow your traffic, without incurring any more costs, then your traffic is getting cheaper. Just these two things combined create an exponential and ever increasing profit.
Thirdly, there’s also back end sales. I’m talking about additional and repeat purchases from existing customers.
There are companies that lose money on a sale just to get the client in the funnel so they can make a money on the back end – this is common practice for marketing companies. (I read recently about a company that loses seven dollars for every sale it makes. The company makes over $4 million a year simply by selling the front-end customers on outstanding back-end products.)
Fourthly, by growing your profit per visitor to your website, guess what, you can now afford to buy more traffic from more expensive sources, and you can now outbid your competitors for the same advertising space, and still profit while they make losses!
What are your clients worth?
Ever wonder how some companies can pay ridiculous prices for your clients in marketing and still make money? Now you know exactly what they are up to.
In fact, they understand what is called their Lifetime Client Value (what one client on average is worth to them for the lifetime of that client) and therefore know exactly how much they can pay to acquire a client. By increasing the value of one client to the company, they can afford to pay more and more to acquire that client.
This means more traffic sources, more visitors and more profits. It just keeps multiplying.
Next time you’re wanting to spend money to increase profits from your website, put that wallet back in your pocket and focus on what you can do to increase conversions.
Remember, it’s not rocket science!
Ash Aryal is a founding partner and the Head of Consulting and Sales at QuantumLinx, an online marketing agency which specialise in providing SEO on tailored online marketing solutions.Image by dullhunk