One of the most common questions online marketers have these days is this: “How can we increase the conversions on (insert marketing campaign here)?”
This is a common question, but it’s often the wrong question. There are several other metrics to consider when measuring and improving the performance of your marketing campaigns. Of all these metrics, conversion rates might be the least important one. So why are so many marketers focused on conversion rates? I suppose we could analyze that, but the more important thing to consider is the problems you run into by being too conversion focused. Let’s do some math and I’ll show you what I mean…
The Trap of Being Focused on Conversions
Let’s assume you have a sales page or a website that’s converting at 1% (a decent rate BTW) and that you’re paying about $1.50 for each new hit of traffic. That’s a total of $150 to make one sale. Now, let’s assume that one sale brings you a total of $250 in income and that after delivering the product, you’ve got only $100 left over.
That’s a LOSS of $50, which would make most marketers panic and start looking for ways to increase their conversion rate to 2% so they could make up for the losses through new sales volume. With a 2% conversion rate, it would only cost them $75 to make the sale and the $50 loss would turn into a gain of $25.
But is this really a success? Not exactly. Sure, you’re profitable. But the only thing you can do now is keep getting new business and hope you can make enough volume to stay in business…OR you can try to increase your conversion rate to 3%. But is increasing conversions really the most sustainable strategy?
I say that it’s not. If your profit margins are that low and if it costs you that much to get a new client, you need to start working on increasing your other metrics through upsells, referrals, repeat business and by testing new price points.
Here are some of the marketing metrics I’m talking about…
Conversion Rates Aren’t the Only Metric
As mentioned before, there are several other metrics to consider when analyzing the performance of your marketing campaigns. Here are just a few of them:
- ROI: How much total money you’ve earned from a marketing campaign. ROI can also be calculated for products.
- Profit Margins: the percentage of money you keep after a service is fulfilled or a product delivered.
- Value Per Customer: the average amount of money you’ll earn from a customer over their lifetime (or over a set period of time, ie “VPC per year”)
- Cost Per Lead: the total amount of money you pay in order to generate a new client lead.
- Cost Per Acquisition: the total amount of money you pay in order to generate a new client sale.
Now, imagine knowing exactly what your average cost is to get a new customer. Imagine knowing how much money a new customer might bring you (on average) over the next year or five years. Do you think you’d have a better idea of how to build a relationship with your customers? And what if, by increasing your conversion rates, your VPC were to drop dramatically? Clearly, this would demonstrate that you’re now attracting lower value customers.
Attracting low value customers might make your upfront numbers look good (your conversion rates and income from new client acquisitions). But this is an illusion if those customers aren’t converting into long term, loyal buyers with high VPC and high referral rates. Low value conversions lead to low value relationships which lead to low profit margins, creating the need to keep scrambling for new business.
Are you starting to see why conversion rates aren’t the most important metric to look at? If your conversion rate is 1% or higher for a new client acquisition campaign, you’ve already got a good campaign. Don’t spin your wheels trying to create more volume by increasing conversions. Refocus your energy on creating continuity programs for turning those customers into loyal buyers who do business with you for a longer period of time and who buy more expensive products and services, who write positive reviews and who bring you referral business.
The more you do this, the more you’ll find that getting a sale is just the beginning and that true sustainable profits and growth are created once the initial conversion is made.
Photo credit: SalFalko / Foter / CC BY-NC