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flyingrose
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Joined: Oct 30, 2003
# Posts: 3361
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Posted: 2006-Aug-13 20:57
Improving the conversion rate of your current visitors is far more important for a Web site owner and particularly for online stores than increasing traffic. The Eisenbergs make this point very well in their book Call to Action:
"Trying to increase sales simply by driving more traffic to a website with a poor customer conversion rate is like trying to keep a leaky bucket (your sales funnel) full by adding more water instead of plugging the holes. Instead, work on keeping more of your visitors from falling out of the funnel on the way to the close."
If you're buying traffic through PPC and other means this is doubly important. Here is an example to more fully illustrate why conversions are more important than increased traffic.
To calculate your profits we need these numbers:
..Number of visitors
..Average cost per click
..Conversion rate (percent who buy something)
..Average revenue per sale
..Profit margin (mark-up between your cost of goods and your retail price)
Here is an example using real dollar amounts for different conversion rates. To make it easy to understand let's use these amounts in our example:
..1000 visitors
..an average cost per click of thirty-five cents = $350 per 1000 visitors
..an average sale of $60
..a profit margin of 45% = $27 profit per $60 sale
CONVERSION RATE OF ONE PERCENT
At a 1% conversion rate, each 1000 visitors = 10 sales
10 sales = $600 in revenue (dollars received from buyers)
Each sale generates $27 in profit for a total of $270
Profit of $270 minus $350 cost of advertising = LOSS of $80
IMPORTANT: No matter how much traffic you drive you're losing money on every sale!
CONVERSION RATE OF TWO PERCENT
At a 2$ conversion rate, each 1000 visitors = 20 sales
20 sales = $1200 in revenue
Each sale generates the same $27 in profit for a total of $540
Profit of $540 minus $350 cost of advertising = $190 clear
Now more traffic equals a profit on every sale.
CONVERSION RATE OF THREE PERCENT
At a 3% conversion rate, each 1000 visitors = 30 sales
30 sales =$1800 in revenue
Each sales still generates that $27 in profit but the total profit is now $810
Profit of $810 minus $350 cost of advertising = $460 clear
Now we're making money consistently.
This illustrates why conversion rate is so much more important than traffic. Even if you're not paying for all your traffic if you aren't converting you are losing potential income with every click!
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SportsGuy
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Joined: Aug 30, 2002
# Posts: 3603
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Posted: 2006-Aug-14 14:01
Great work Rose! Perfectly explains the concept!
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excell
Staff
Joined: Mar 19, 2001
# Posts: 14513
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Posted: 2006-Aug-14 16:24
Very excellent and the idea can be used across many areas of a business...
When in doubt get out your business plan and check - does it (what you are doing) help or hinder your business objectives.?
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anyshare
Joined: Nov 12, 2006
# Posts: 2
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Posted: 2006-Nov-13 03:11
It is very good illustration how improtant the conversion rates are. basic but understandable.
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flyingrose
Staff
Joined: Oct 30, 2003
# Posts: 3361
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Posted: 2006-Nov-13 03:49
Thank you. Conversions are so very important and so many online businesses have extremely low conversion rates due to the way they are designed and how their buying processes work.
It is critical that they be improved before any advertising is undertaken or it can be extremely difficult to generate a positive cashflow.
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