The Two Levers of E-commerceDecember 2, 2008 By Dr. Pete
With Black Friday and Cyber Monday behind us, a looming recession, and 2009 just around the corner, I thought it might be a good time to get back to some e-commerce basics. When it comes to our business websites, what do we really have control over? I think we can ultimately pull one of two levers, as illustrated below:
To be more successful at e-commerce, we can either: (1) drive more traffic, (2) convert that traffic, or both. Sounds simple enough, but the implications are important and easy to overlook. Let's say that we have a site that gets 1,000 visitors/month, converts 2% of those visitors into sales and makes $10 (gross) per sale. Our revenue equation looks something like:
Lever 1 - TrafficSo, what if we pull the traffic lever (offline advertising, SEO, PPC, etc.) and manage to double our traffic? Great - if everything else stays the same (granted, it's a big if, but let's keep things simple), we've doubled our revenue:
Lever 2 - ConversionAlternatively, let's say that we work to improve our conversion rate (usability, design, testing, copywriting, etc.) and manage to double it. Similar to traffic, we've doubled our bottom-line to $8,000/month:
Why 2 + 2 = 4X the $So, what happens if you combine these two doubling effects? The end result is multiplicative, generating four times the original revenue:
Why is this significant? Because to achieve the same result you get from a 100% traffic increase and 100% conversion increase combined, you need to increase either one alone by 300%. Especially when you consider that initial increases are the easiest and the going only gets tougher as you improve, doubling both traffic and conversion may be much easier than pouring all of your resources into just driving traffic. If you're only pulling one lever or another, you may be missing out on real money. As you plan for 2009, ask yourself what you can do to both drive quality traffic and convert that traffic into sales.
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