## December 02, 2019

### Prices Up, Customers Down

Recall our paid search scenario from yesterday.
• Spend = \$100,000.
• Clicks = 200,000.
• Cost per Click = \$0.50.
• Conversion Rate = 1.8%.
• Orders = 3,600.
• Average Order Value = \$100.
• Profit Factor = 30%.
• Profit = (3,600*100)*0.30 - \$100,000 = \$8,000.
• Profit per Order = (8,000 / 3,600) = \$2.22.
The following year your merchandising team increases prices via introducing new items at higher price points. As a consequence, average order values increase 10% but conversion rates decrease 10%. On the surface, this dynamic should result in flat sales, right?

But something else interesting happens. Take a look.
• Spend = \$100,000.
• Clicks = 200,000.
• Cost per Click = \$0.50.
• Conversion Rate = 1.8%*0.909=1.64%.
• Orders = 3,280.
• Average Order Value = \$110.
• Profit Factor = 30%.
• Profit = (3,280*110)*0.30 - \$100,000 = \$8,240.
• Profit per Order = (8,240 / 3,280) = \$2.51.
Did you see what happened?
• Customers/Orders = Down 9%.
• Profit per Order = Up 13%.
Price increases typically result in fewer customers, but the transactions you generate are more profitable (per customer), meaning you can actually increase marketing spend to find a few additional customers. And you'll want to do that, because if you don't do that you'll eventually grind your customer file down by 5% or 10% and then you'll have growth issues in the future.