WHY YOUR SALES CONVERSION RATE MATTERS

If you are working in a digital marketing team, it is highly likely that you will already be reporting your e-commerce conversion rate.  

E-commerce conversion rate improvement should generally be part of your crucial key performance indicators if you are serious about selling online in any volume.  

When I find clients that do not measure conversion rates, it is often because the team does not have a good understanding of how vital their conversion rate is to the growth and scalability of their business. 

Conversion rate improvement should be part of your typical day to day grind if you are selling online.  

If you are running a small e-commerce store, or affiliate site, small hotel or other small online business on your own then you probably feel that it is one more thing you have to do.

Another administrative burden you have to carry.

I do hear that quite a lot, in consultations with small business clients especially.

A quick example of how improving their conversion rate can impact their earnings is often all that is needed to convince clients that Conversion Rate Optimisation its high on the priority list. 

Why is Conversion Rate Important 

Assuming that you have a source of quality web traffic in place for your e-commerce online store lets dive into the basics of e-commerce conversion.  

We will cover:

  • Why is the conversion rate when selling online so important?
  • How it can help you increase your sales fast with minimal effort 
  • When it can help you scale your business and how

I am going to use one of my RevOps consulting clients as an example.

Except in real life he doesn’t sell shoes and his name is not Bob – but the business situation and the numbers I have used are somewhat similar. 

Sales Conversion Rate Example

Bobs Shoes –  A Conversion Rate  Impact Example

Let’s look at a very simplified example of an online shoe store, ” Bobs Shoe Store.”

Bob’s store sells handmade shoes online and ships them globally.  

He sells a pair of shoes for around $100 bucks. 

Cobbler Bob makes his shoes at the cost of $50 bucks a pair and has gross margins after his production and labour costs are around $50 per pair.

conversions require traffic   

To bring customers to his store, Bob advertises on the keyword – “Fine Shoes” on Google. 

Bob can only afford to spend $500 on advertising each month. 

For each customer that Google advertising drives to the Bobs shoe website, Bob pays 10 cents to Google. 

Google sends Bob 5000 potential customers per month for a total cost of $500.00 every month. 

With 5000 customers that click into Bob’s online shoe shop, he sells an average of 50 pairs of shoes.  

His conversion rate – the % number of visitors to his online shop that becomes shoe buyers is just 1% of the total number of people that visit his shop. 

How to calculate the sales conversion rate 

To calculate your conversion rate, you divide the number of Conversions (e-commerce sales or goals) by the total number of people that visited your online store X (multiply) by 100. 

If you made 72 sales last week and 872 visitors visited your store (72/872) = 0.0825 x 100 = 8.25 This is the conversion rate in per cent. 8.25% 

Your sales / divided by your visitors x 100 = Sales Conversion Rate

It is the total number of buyers compared to the total number of visitors in a percentage terms.

Bob’s monthly sales of 50 pairs of shoes generate him the following revenue. 

50 shoe sales X $50 profit = $2500.00 a month. 

After he pays his Google advertising bill of $500, leaving him with a $2,000 a month profit.  

In one year, Bob will earn $24,000.00 net profit. ($2,000 a month x 12 months = $24,000)

As Bob can only afford $500 a month, his challenge is how can he increase the number of shoe sales without increasing his advertising spend. 

Sales Conversion Rate Description

How to increase sales without spending more on advertising or time on SEO

How can Bob sell more shoes without forking out more greenbacks to Google for more potential customer traffic?

The simple answer is to CONVERT or sell a higher percentage of visitors to his online store into loyal Bob’s Shoes customers. 

Small conversion rate changes can have a considerable impact. 

Let’s say that Bob improves his conversion rate by 10% – so now for the same $500 a month Google advertising spend.

Bob gets the same 5000 website visitors a month but manages to sell 55 pairs of shoes instead of his usual 50.  

His conversion rate is still low at only 1.1 per cent, but Bob has sold 55 pairs of shoes.

55 multiplied by a $50 gross profit per shoes and Bob earns $2250.00 a month after his ad spend.

A $27,000 a year net income.  Compared to $24,000.00 – he has a $3000.00 in gross profit improvement with such a small increase in Sales Conversion Rate.

What happens if over a few weeks Bob could tinker with his website and online store to improve his conversion rates? 

Even whilst he still only spends $500 a month on advertising. 

The impact of a conversion rate optimisation project 

$24,000.00 per year – What Bob was earning before

Day 1)  Bob implements an exit-intent popup conversion rate jumps to 1.1%. Bobs profit is now $27,000 per year.

Day 2) Bob improves the speed of his website, conversion rate jumps to 1.3%. Bob’s profit is $31,200 per year. 

Day 5) Bob finishes implementing a simple CRM improving conversion rates to  2%. Bobs profit is now $48,000 per year 

Day 15) Bob develops a memorable brand name for his online store his conversion rates jumps 3%.  Bobs profit is now a dizzy $72,000 per year. 

Day 25) Bob improves his customer service and reputation his repeat visitors drive his conversion rate to 4%. Bobs profit is now $96,000 per year. 

In just under a months worth of work, Bob took his annual earnings from $24,000 per year to $96,000 a year. 

All without spending a penny on more advertising.

It is easy to see how by continually chipping away at improving his online store conversion rate and by keeping his budget at a stable $500 how his business improves.

Here is a sample graph of Bobs earnings by conversion rate.

 

Conversion Rate Example

How Conversion Rate Can Impact your growth 

Now instead of keeping a fixed budget of $500.00 per month, let us say that old Bob decided to spend 20% of his gross profits back into acquiring more traffic to his online store.  

For simplicity, we will say that Bob still spends on good quality traffic and keeps getting people searching for shoes on his site. 

Let’s have a look at his accumulated annual earnings and the impact of applying that extra revenue he has earned. 

By improving his conversion rate and using the extra profit to help scale his advertising and the number of people now visiting his online store, Bob gets some chunky results.  

With the extra money spent on more traffic at a 1.3% conversion rate, Bob earns 42,900 per year compared to $31,200 he makes without investing his additional profits back into advertising. 

At 2% Bob is earning a whopping – 108K a year profit / compared to his measly $48K without increasing his ad budget as his revenue increased. 

Wow at 3% Bob is a high roller – he is pulling in over 1/4 of a million a year. 

Crazy that at 4%, Bob is close to half a million, at 5% conversion rate and still investing his 20% of revenues into quality traffic Bob crosses the 700K line. 

Conversion Rate Graph

Benefits of conversion rate optimisation projects 

It is bananas the number of people I run into that have excellent products, great ethical and responsible businesses that do absolutely no conversion rate optimisation at all.  

As a result, like Bob, they end up earning 24,000

Not the half a million they would have cleared, only if they had managed to execute a respectable conversion rate and invested the benefits. 

By increasing your conversion rate, you can improve your sales volume and therefore, fund the advertising budget required to scale your business. 

One thing I often see even in existing successful online entrepreneurs is that they spend a considerable amount of their time and money buying traffic without paying attention to conversion rate optimisation.  

As a result, when they resolve their 10-year-old conversion rate problem, it is common for them to experience some severe lamenting on the vast amount of cash flow they had left on the table.

Especially during the times when they were struggling to make ends meet.

Offline and Online Application of Sales Conversion Rate

The same principles apply to offline conversion.

If Bob has a physical shoe store and he can train his sales team to sell three times more shoes every day of the week, of course, his profits are going to increase. 

It stands to reason that if he invests those profits made by the superhero salespeople into more advertising that gets more people into his shop to meet his fabulous sales team, of course, he will make more money. 

What is a good conversion rate?

A reasonable conversion rate is one that works for you based on the business objectives you are trying to achieve.

At the low end, 1% is acceptable, for companies like gift companies a 4-5% conversion rate is fair. 

Conversion rates vary widely – based on industry, product category, device, traffic source, content quality, goal structure and many other factors.  

Bob’s shoes is an incredibly simple example to help newbies get to grips with why it is essential to have your eye on your conversion rates as you scale your e-commerce business. 

Helpful sales conversion rate planning tools

There are some great products available that can help you work out all of your own statistics and conversion rate returns before you start.

You can also use tools like Funnelytics or Geru to map out your funnels and work out all of the underlying math and traffic costs, margins etc in advance.  They can be very helpful for a digital team to ensure they have run the numbers before they spend the money. 

Online Sales Funnel Conversion Rates 

If you are selling predominantly by using an online sales funnel – then there is often some confusion as to at what stage of the funnel you should spend your time first.  

Again this will vary based on where you are in your business and what your goals are.

If money is thin on the ground, you may want to focus on the closing process end of your funnel first. Increasing the sales conversion rate at the closing end of the funnel is likely to generate quick results. 

If you are short on customers in general, you should put your focus into improving the conversion rate of getting customers into your funnel process. 

If you are not under significant pressure for revenue and you are improving the process, then start by enhancing the funnel stage with the lowest conversion rates first.  

More in your funnel = more sales.  

How to Improve Sales Conversion Rates

Luckily – even if your conversion rate is lingering in the low depths of near-zero, there are lots of quick and easy ways to improve conversion rates without a lot of time and effort invested. 

Click here to read how to improve your sales conversion rates quickly. 

 

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Sales and Marketing Coach at SAS Whizwang.com / Wizzwang.com
Hi, I am Steve, father of Harrisson and Marley, husband to Erica, and secret tech nerd.I have been lucky enough to have worked with some of the best high-performance companies and teams in a Sales & Marketing leadership position over the past 25 years.

I am available to coach via WizzWang.com. I can help you implement sales and marketing transaction systems, processes and techniques that help your company grow revenues and increase profitability.All whilst keeping things simple and under budget.
Steve