After reading my colleague Melissa Burdon’s last two posts about impressive testing wins with a client, I thought it would be fun to discuss the amazing financial gains that come to businesses that keep testing instead of assuming they’ve gotten their “win” and should move on to other things. I hope to illustrate that in conversion rate optimization, persistence pays off in real financial value.
I also want to help illustrate the power of “compounding conversion optimization,” meaning that, like compounding interest on a bank account, continuing to make small, incremental increases to conversion rate adds up to big ROI over time. This is especially true in a competitive environment where you decide to be more disciplined about conversion rate optimization than your competitor(s).
To illustrate this concept, let’s take a hypothetical site’s KPIs, and then check out some visual aids. Let’s say you have a website set up to market and sell Devo “Energy Dome” hats. You know, the red hats the 80s band, Devo, wore/wear that look like red flowerpots? OK, you can act like you don’t know what I’m talking about…whatever . Here’s Paris rocking one.
Your Energy Dome site gets 5,000 unique visitors a month. It converts at 1% historically. The Average Order Value of a sale/conversion is $25. So, that’s a $1,250 per month business.
You have a competitor whose site also gets 5,000 uniques a month, converts at 1%, and has an AOV of $25. So, you’re in a dead heat, making the same amount of money, while competing to acquire the same prospective customers.
Then, you run a test and have a very successful outcome. The variation beats the control by 100%, so you make the variation the new default, and now your conversion rate has doubled, and you have a $2,500 per month business.
Your competitor runs a miraculously similar test, and gets identical results. Double the conversion rate; double the business. Your competitor heads down to the local bar to celebrate and brag about how he doubled his business overnight.
But you keep going, and run a series of four additional tests, all resulting in much smaller gains. Let’s say your next four wins increase conversion rate by 50%, then 20%, then only 10%, then a mere 5%. In the chart [click to enlarge], the blue trend line shows you starting out making large gains, then eventually reach a point nearing “diminishing returns.” The red line is your lazy competitor, who stopped optimizing and headed to the local pub.
While the progression of conversion rate increases gets less and less impressive (2% to 3% to 3.6% to 3.96% to 4.16%) after that first big “win,” think about the financial impact of the smaller, incremental improvements. You’re now a $5,200 per month business instead of the $2,500 your competitor stopped at, or the $1,250 business you both started out at.
Take another look at the chart [click to enlarge]. Your competitor’s area of profit stayed static, and maybe is starting to shrink because your site is so well improved. You both doubled your business overnight, but you more than doubled your business again by running a few more tests!
And now that you’re making $2,700 a month more than your competitor, what should you do? You can now invest in more marketing and site improvements that will take more market share from your already ailing foe.
In the highly competitive and budget-constrained world of online marketing, can you afford NOT to get on a program of continuous improvement? We’re not talking about simply running a few basic tests…we’re talking about a slow-and-steady disciplined approach to relatively small improvements over time.
If you’ve done some testing, and are getting bored, I hope this encourages you to stick with it. If you haven’t started testing, I hope this illustrates a relatively straightforward way to beat your competition. What say you? Do you want to slay the dragon slowly?