Engineering Growth: How Making a Small Bet on Conversion Will Give You a Greater ROI

It’s not easy being a Chief Marketing Officer these days. With average tenure being somewhere between two to four years, there’s constant pressure to perform. To increase sales. To grab more market share and dominate the competition. To cut costs and boost revenue. And the unfortunate fact is that CEOs often don’t look favorably on CMOs.

The Harvard Business Review notes: A 2012 global survey by the Fournaise Marketing Group highlights the tensions between them: The results reveal that 80% of CEOs don’t trust or are unimpressed with their CMOs. (In comparison, just 10% of the same CEOs feel that way about their CFOs and CIOs.) CMOs also sense a serious problem.

In our own surveys, 74% of them say they believe their jobs don’t allow them to maximize their impact on the business. This troubled relationship helps explain why CMOs have the highest turnover in the C-suite. According to an analysis by Korn Ferry, they stay in office 4.1 years on average, while CEOs average 8 years; CFOs, 5.1 years; CHROs, 5 years; and CIOs, 4.3 years. It’s not difficult to understand why CMO’s have such difficult task.

It’s often challenging to show how their work directly relates to the bottom line. After all, how does one evaluate the bottom line impact of a social media brand building strategy or a rebranding campaign? Even measurements like increased reach, more leads, or an eye-catching new product can be difficult to connect directly to profits.

But what if there was a way to demonstrate the value of the marketing department, impress C-level executives, and directly impact the bottom line? What if there were a structured, proven process, rooted firmly in data, and directly tied to the bottom line? Too good to be true? Nope. That process is Conversion Rate Optimization (CRO). CRO is one of the most underrated and profitable marketing strategies. It checks off all the necessary boxes (tied to revenue, statistics based, etc.) and it’s relatively low risk. If done correctly, it always produces positive results.

Why is CRO so powerful? Keep reading to learn.

Your Revenue Increases Significantly

Conversion rate optimization always produces a direct and specific measurable impact on your bottom line. It’s not particularly complicated: a higher conversion rate means more sales. Assuming that the higher rate isn’t due to slashed prices, more sales always leads to more revenue. Depending on the amount of sales you make in a given year, even a small conversion rate bump can have huge financial implications.

Let’s say you’re currently at $1,000,000 in sales per year on a 1% conversion rate and you can increase that conversion rate by 25% to 1.25%. At first blush, that $250,000 dollar increase may not seem like much, but the power comes over time. Imagine if the implications if you could increase your conversion rate by 50% over a year (to 1.5%, which is certainly doable). That quickly increases bottom line numbers. This is the beauty of CRO. Small, incremental changes engineered over time eventually lead to big increases.

Managing Your Costs

This ability to essentially “control” your costs allows you to be very measured in your advertising. This is particularly important in relationship to advertising and traffic costs. You can almost always send more traffic to your site through advertising and SEO efforts, but that always comes at a cost. But if your conversion rate hasn’t improved at all, your actual net profits are negligible since they’re eaten up by the cost of the traffic. However, if you can increase your conversion rate, increased traffic means increased revenue.

As advertising and SEO costs continue to increase (and they will), the ability to squeeze more revenue from those on your site will only increase in importance. If you fail to address the issue, eventually your profits will start falling as your costs begin to eat in your sales. Your cost per click and cost per customer acquisition will rise while your revenue remains stagnant, which will eventually become unsustainable. This is why investing in conversion rate optimization is almost always a no-brainer. The wins are clear and the downsides are almost non-existent.

If you’re willing to patiently work through a system of testing, measuring, retesting, and then doubling down on what works, you can always improve your conversion rate and increase your sales.

The Key To Differentiating

The good news is, in order to begin compounding your revenue, you don’t have to compound your expenses. In order to take a bigger bite out of your target market, you only need to become incrementally better than your competition to start attracting them. You can use conversion optimization to fine tune your user experience and consequently improve your conversion rate, your customer experience, lower your cost per acquisition, increase your customer lifetime value, and more.

In a crowded ecommerce market, it can be challenging to figure out ways to differentiate yourself from competitors. You could spend more money on advertising and drive more traffic to your site. You could spend more money on product development and try to build unique, never before seen products. Or you could invest in CRO and begin edging out your competitors even if you’re essentially selling the same products. If you have the higher conversion rate, you make more sales than your competitor, and that’s always a win.

Often times, top-level executives think the way toward massive growth is fast, large-scale changes. And while this occasionally works, it often results in large-scale failure. On the contrary, optimizing conversion rates always yields positive ROI when done correctly.

Tim Kachuriak puts it this way: Because testing and optimization validate your hypotheses, you get insights.

Insights are learnings that can be repeated from one experiment to another. In other words, your lift from the last experiment becomes your baseline in the next. So, when you apply the optimization process…you don’t just increase revenue. You dramatically increase revenue. And because CRO is based on data, hypotheses, and then conclusions, you can always demonstrate that a specific optimization led to more revenue.

You can show how a set of changes led your ecommerce browsers to become buyers. This kind of hard data is impossible to ignore. When 10% more browsers are clicking the “buy” button, even the most skeptical CEOs will be forced to reconsider their position.

Your Conversion Boost Is Disproportionate To Your Costs

Consider all the ways you can boost ecommerce revenue:

  • Create new products
  • Drive more advertising traffic
  • Create new marketing campaigns
  • Invest in new media types (video, social media influencers, etc.)
  • Do a PR outreach campaign
  • And more

The problem isn’t that you lack options. The problem is that each of these methods is costly and not always guaranteed to increase revenue. Your new marketing campaign may go the way of New Coke and Pets.com. Your deluge of advertising traffic may not produce a single sale. The PR firm you hire may do a terrible job. The end result? Lots of money spent with minimal return. This is the perennial challenge that marketers face. You spend money without a rock solid guarantee that you’ll get a good ROI.

CRO: The Cost Effective Solution

Conversion rate optimization, on the other hand, is a different matter. Increasing conversion rates is one of the few things in ecommerce that boosts revenues without significantly increasing costs. In fact, your costs may even go down if you do CRO properly.

With CRO, you’re not adding many new expenses to the budget. You’re not spending more on advertising, web hosting, content creation, social media campaigns, or anything else. You don’t have to hire an expensive ad agency or come up with a new, bold, visionary strategy. You’re simply working on improving what you already have. You have browsers already coming to your site, examining your products, putting some in the cart, and occasionally making purchases.

Most of the browsers are not buyers, they’re simply window shoppers. Instead of trying to bring in more window shoppers, CRO focuses on converting those existing browsers into buyers. Sean Ellis of Growth Hackers puts it helpfully: To fix the problem of a faulty funnel, you have a couple of options: Pour more water through the funnel, or fix the holes so that you’re not pouring water all over the ground.

The first option (pouring more water through the funnel) is analogous to purchasing more traffic. Yes, more water will reach the bottle, but you have to pay for that water, and a lot of it still ends up wasted.

Conversion rate optimization, on the other hand, is an attempt to find and patch the holes so that you’re not spilling so much water in the first place. That analogy mirrors what’s actually happening on your website in your conversion funnel. Those leaks are caused by slow load times, friction in your user flow, unclear calls-to-action, and literally anything else that might cause a user to give up before reaching the ultimate conversion point.

This is the beauty of increasing your conversion rates. The only variable costs that increase is fulfillment costs, and that only happens when your conversion rates go up. The bottom line is that your percentage of growth will outpace your costs, sometimes by a significant margin.

Compass puts it like this: An e-commerce website we know came to the conclusion that product pages with at least one review in them performed twice as good as the ones that didn’t. They then looked at their reviews page and realized that with a simple change they’d increase the number of reviews they received by 5x.

That was it.

One targeted improvement and nearly double the sales from their long tail pages, producing a monthly revenue increase of $100k while costing only $15k to make the changes. And profits will grow even more because the cost of implementing this change is not increasing.

Granted, you may not see profit explosions quite so easily, but the moral is the same: increasing your conversion rates is one of the few things that will significantly boost your revenues without increasing your costs.

Paid Traffic Costs Are Rising

Being able to increase your conversion rates can be the difference between a thriving business and a declining business, particularly if you rely heavily on paid traffic. Mark Fahey, commenting on the increasing costs of acquiring traffic, says: Digital ads may cost more, but that doesn’t mean they’re more effective.

Take search advertisements, for example — over the past two years, advertisers have increased their total spending on search by 42 percent, but the number of visits to advertisers’ websites resulting from those ads has increased only 11 percent, according to Adobe.

If you are relying heavily on paid traffic, there’s a good chance that your traffic acquisition costs are going to keep increasing in the coming years. This increasing cost is going to eat at your profits until your margins are barely viable.

Clearly, you need a strategy that doesn’t hinge on getting more people to your ecommerce site. The alternative to this, of course, is improving your conversion rates. Rather than trying to get more traffic, work on converting the traffic you already have. Reduce the number of abandoned carts, minimize friction, and remove customer loops that cause confusion. A/B test headlines, choose different photos for products, and change the wording on headlines.

None of these things require herculean efforts, yet all of these relatively small changes that can generate outsized results. If you want to be a growing business, don’t only rely on your ability to pay for more traffic. Eventually, that strategy will run out of steam and you’ll hit the decline. You need to focus on fixing the holes in your funnel and getting more water (customers) to the bottom. Focus on improving what you have control of.

You Can Buy More Traffic For Less

The ironic part about CRO is that even though traffic costs may rise overall, if you do CRO correctly you can actually buy more traffic for less. This may seem counterintuitive, but consider how the process works. With a low conversion rate, you have to send a higher volume of traffic to your site to reach a certain sales level.

As you improve your conversion rate, you see a boost in revenue without an associated jump in cost. This means that the percentage of your traffic costs, when compared to revenue, has actually dropped. You can then reinvest your new profits back into purchasing traffic.

When you send that new traffic to your site, you again see a bump in sales because you previously improved your conversion rate. In the end you have more traffic, leading to more sales, while keeping your overall ad spend/revenue ratio less or the same.

A simple example for the sake of clarity. If your current sales is $100 and your ad spend is $20, you’re spending 20% of your budget to acquire traffic. If, through improving your conversion rate, your sales goes up to $150, suddenly your ad spend is only 13% of your budget. You now have the option of spending more on traffic and still keeping your ad spend at the original 20%.

The Virtuous Cycle Of CRO

This promotes a virtuous cycle. You increase your conversion rate, your profits go up, and then you can spend more on traffic. You drive more traffic, which is now converting at a higher rate, and that drives even more profit. When your business is able to get into this type of groove, you set yourself up for significant growth. A sports analogy can be helpful here.

Nick Saban, coach of the Alabama Crimson Tide, is one of, if not the most successful college football coaches of the last 50 years. Part of what makes his teams so successful is that every year they recruit the best talent in the country, which allows them to field nearly unbeatable teams. The more they win, the more people want to play for them, which gives them a better team, which makes them win even more.

This is similar to CRO. You improve your conversion rates, your revenue goes up and your ad spend goes down. Then you bring your ad spend back up to its original level, and your revenue goes up again. It’s beautiful.

CRO Proves It’s Worth

At times, it can be difficult for people to understand the value of conversion rate optimization. It’s challenging for them to make the connection between A/B testing a sales page and a jump in the overall revenue. When you make the case for it, some might say, “Why not spend that time and money on making sales calls or hiring more staff? How will testing various purchase buttons or product pages contribute to our main goals?” These objections usually evaporate when people see the results of increased conversion rates.

They may not understand why adding reviews to a page increases sales, but they certainly can see the value of more profits with the same costs. CRO is especially helpful and important for companies who are on the verge of big growth but find themselves strapped for resources.

Unlike most growth activities, which are heavy on resources, optimizing conversion rates primarily requires time and creativity. It doesn’t require do or die risks and it can be the thing that pushes a company to the next level of growth. No new products need be developed, no new ad budgets must be approved. It’s simply a matter of gathering data, forming hypotheses, testing those hypotheses, and then making small, incremental improvements that add up to big results.

If you want to engineer growth in your company, you can do it in big, splashy, expensive ways, with branding campaigns and flashy new products. Or you can do it the less sexy, often more effective way with CRO. We’ll take effectiveness every time.