Caffeine & Commerce Digital Operative

Hello and welcome to today’s podcast on the Economics of CRO. I’m Nick Powell, Optimization Architect with Digital Operative.

Here is a question I get almost daily. Is it better to improve conversion rates before increasing my media spend? Or can I do both at the same time? So, today, we are going to take a look at how conversion rate optimization (CRO) can increase the impact of your marketing dollars.

Here is the reality marketers are facing today. Media costs are rising.

LiveIntent reported in an October 2019 survey that cost per impressions (CPM) on Facebook have grown 90% YoY for marketers, and that number only continues to grow. In that same study, 47% of the marketers worry that if costs continue to rise, they could be priced out of Facebook advertising.

Here’s where CRO can help.

Let’s start by setting up the following scenario, let’s call this scenario A.

Let’s assume that you are spending $20K to generate 100K new visitors per month. Let’s also assume your current conversion rate is 2% and average order value $50.

In this scenario, that amounts to $100k in revenue and a 5:1 Return On Ad Spend. This is a solid, profitable ratio on the surface. However as marketing costs increase due to more competition and other factors, your Return On Ad Spend will inherently decrease over time.

This is where having a CRO program matters most. Improving site metrics has a direct and lasting impact on your Return On Ad Spend.

So, let’s play out another scenario and then we will review some tactics that you can start executing.

Let’s assume your media costs increase 50% to acquire that same 100k new users. Now your spend went from $20k to $30K. But at the same time, let's also assume you have increased conversion rates from 2% to 3% and AOV from $50 to $55 Your Return On Ad Spend is now 5.5:1, even with the substantial increase in costs.

The obvious question is, great, so what can I do to impact CR and AOV.

Well here are a couple basic tactics to get you started.

Conversion Rates are really just about driving quality product views by matching your content with incoming customer motivations. Behavioral data through testing as well as customer surveys can help to pinpoint these motivations.

Learn more about Conversion Rate Optimization & Digital Marketing on our blog.