Sales Revenue Optimization – A Yes Brainer

This is a guest post by Alexander Richter

How to get a new sports car when you run an e-commerce company?

Revenue/Visit – nice Things will happen

In most cases the conversion on an e-commerce website is a sale. The measure of how many people bought is vital since you can not only evaluate the success of your advertising efforts, but the effectiveness of your webshop.

Unfortunately that’s only half the truth ­because a conversion as a boolean value does not tell you how profitable the order was or how much value it had for you. As an e-­tailer it is primarily not just about the count of the disposal, it is about the profit (or better, the gross profit!). That is what you pay the sports car from. Optimizing the proportion of revenue per visit brings great results to surface. Suddenly you as an e­-tailer can spend more money on advertising since a average visit has more value now ­ a conversion can be more expensive. On this point you can clap your heels together three times and wish something: Do you want more profit based on the number of visits you have (who wants that?) or “buy” more conversions (by increasing the number of visitors by SEA/SEO/Affiliate etc. activities) for the same price? Either way a single visit has an higher value for you!

How come Revenue Optimization and Conversion Rate Optimization is not always one Thing?

The conversion rate (CR) and the revenue/visit (RPV) are the two key performance indicators (KPIs) which are not connected fixedly. In many cases an improvement of the CR means an increase of the RPV. But there is optimization that can go wrong without knowing it and just having an eye on the conversion rate.

We are getting a little negative first

An example, starting with a negative view: An ecommerce site implements an overview of the top sellers directly on the homepage. A split­testing­tool is setup to quantify the success of this action. Yay! The conversion rate is higher now, likely the customers can find the most bought stuff easier now.

What have not been seen? ­ The actual revenue per customer is regressive. Maybe because of the easier way it was no longer necessary for the customer to have a closer look on the rest of the line of goods in the category ­listings etc. Cross selling by exploring did not take place any longer.

Nevertheless this action could have a positive effect on both metrics. It is just important to test and keep in mind that your web-shop has one primary mission: Getting as much gain per visitor as possible. That is what makes a website sexy for the e­tailer.

A positive Example

An example, but no rocket science, how you can increase the revenue/visit is the implementation of a free shippingthreshold. If your customer passes a certain purchase total the shipping is free. Here it is important to choose the threshold wisely. It is not unusual that the CR will not change or will even get worse. Visitors find the article they looked for, but the total is too less for the threshold. This could be frustrating, they got the feeling of getting it cheaper somewhere else and will leave. Here comes the big BUT: Customers with a cart value close to the threshold feel encouraged to crack the threshold by putting some more (mostly peanuts) in their carts. The average order value is rising. As a consequence the CR is maybe going down a little, but the RPV looks better now. Cool ­ one step closer to your (not necessarily imaginary) sports car!

Get real

On the following chart you can see the trend of an A/B­split test where two thresholds have been implemented: ­

  • A free­shipping­threshold for orders greater 100 EUR (136 US­Dollar) ­
  • A gift if 200 EUR are exceeded (272 US­Dollar)

Comparing the challenger (here named “before”) and the competitor (here “after”) you can see that there was two (quite flat) accumulations before. With the competitor they were shifted to the right (higher order value) and become more acute (more orders of that order value). In average there was a higher order value per visit.

Revenue per Visit Chart

In Numbers:

Visits Orders Value Av. OV CR Av. PRV Improvement
Before 151.122 5.209 711.940,00 € 136.67 € 3.45% 4.71 €
After 150.041 5.165 752.950,00 € 145.78 € 3.44% 5,02 € 6.52%

 

Dr. Flint McGlaughlin and the “magnitude of the change”
I like Dr. Flint McGlaughlin ­ especially one very true quote of him: It’s not the magnitude of the change on the page that impacts conversion. It’s the magnitude of the change in the mind.

Takeaways
● The metrics conversion rate and revenue/visit are akin, but not the same
● Don’t just optimize the usability ­ optimize the motivation of the visitor to buy (more)

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Alexander Richter

 

 

 

 

 

 

About the author:

Alexander Richter works for the ReBOOM GmbH in Germany. My everyday work is just one thing: Optimizing commerce sites.

 

 

Categories: Ecommerce