October 22, 2015

Managing Conversion Rates

Question: You make a change to your website. You used to have 100,000 visits and a 3.0% conversion rate. Now you have 93,750 visits and a 3.2% conversion rate. Average order value is $100 in both cases. Did you fundamentally improve the business by improving conversion rate?
  1. No.
  2. Yes.
Well, both answers get us to 3,000 orders at a $100 average order value.

In other words, pre-change and post-change, we generate $300,000.

So, no (1), we did not fundamentally improve the business by improving conversion rates.

This is a common dilemma out there in the real world. We make changes to "reduce friction" ... and in this case, we reduced friction. But we didn't increase sales. And if we can't increase sales, well, then the effort is largely wasted.

In other words, if the customer used to visit six times before buying something, and now visits five times before buying something (and spends the exact same amount), we reduced friction but we did not improve sales, and we did not improve profitability, so maybe we need to spend time elsewhere (or change how we measure success - go talk to Google about that one).