How to Maximize Sales and Conversions in eCommerce

I wrote the title above in that order for a reason. Surprisingly most e-commerce store owners we have met over the years are more OBSESSED with improving SALES than they are about improving CONVERSIONS.

They may talk about conversions, but rarely take the time and actions needed to properly improve them. It’s like e-commerce business suicide.

If an e-commerce website has inherent problems with sales conversions, then driving more visitors to the site to get more sales is NEVER going to be profitable.

Knowing your numbers

If you are already running an e-commerce business and don’t understand ALL your numbers precisely, then you need to get on top of that QUICKLY.

Every e-commerce business owner should know their advertising:

  • Cost Per Click (CPC)
  • Click Through Rate (CTR)
  • Google Ads Quality Score

They should also know their e-commerce website:

  • Conversion Rate (CR)
  • Average Order Value (AOV)
  • Gross Profit (GP)
  • Cost Per Acquisition (CPA)

Larger more established sites also know one more metric that can prove invaluable:

CUSTOMER LIFETIME VALUE (CLV or CLTV)

Otherwise known as Lifetime Customer Value (LCV), or Life-Time Value (LTV)

This is the known or predicted average SALES VALUE and PROFIT from each customer over an average lifetime of a customer. By lifetime here we mean the length of time the average customer stays a customer of that company, rather than how long the average customer lives for!

So why is this metric useful?

Knowing (or predicting) your CLV can help an e-commerce site calculate how much they are PREPARED TO SPEND on advertising costs to acquire each new customer (Cost Per Acquisition – CPA), as although they might not make a profit off the average first purchase, they know that the average customer would become profitable after so many months, or even years. So in effect, the CPA will start high then reduce down over time as the CLV takes effect.This can allow such sites to outbid competitors on pay-per-click auctions like Google ADWORDS as they are prepared to cash-flow the initial losses, for the

This can allow such sites to outbid competitors on pay-per-click auctions like Google ADWORDS as they are prepared to cash-flow the initial losses, for the long-term gains.

Let’s look at an example of an e-commerce website using Google ADWORDS to drive visitors to the site. The purpose of this example is to show how small changes can make a BIG impact on profit or loss, success or failure.

We will explore 3 scenarios:

  1. Initial website conversions and sales
  2. Improving the AD’s Click Through Rate (CTR) to drive more visitors to the site BUT not improving anything else on the site
  3. All round improvements on the CTR but also the e-commerce website

SCENARIO 1: Initial e-commerce website scenario

  • 500,000 AD IMPRESSIONS per month
  • Average CLICK-THROUGH RATE (CTR) of 2%
  • Average COST PER CLICK (CPC) of $0.75
  • Average sales CONVERSION RATE (CR) of 1%
  • AVERAGE ORDER VALUE (AOV) of $50
  • GROSS PROFIT (GP) margin of 40%

= $5,000 SALES INCOME

ADWORDS spend for month = 10,000 clicks @ average $0.75 CPC = $7,500
Cost Per Acquisition (CPA) of $75 ($7,500 ad spend divided by 100 sales)
40% gross margin on $5,000 of sales = $2,000

PROFIT / LOSS = $2,000 gross margin MINUS $7,500 ADWORDS spend = $5,000 GROSS LOSS

NOTE

We assume a 2% CTR and 1% CR average above, BUT it’s down to the quality and relevance of your ads. Imagine what the loss would be if you only had a 0.5% website conversion rate like so many sites do, or if your gross margins were lower than 40%! Making an initial loss isn’t good but it’s certainly not uncommon or, the end of the world. If you deliver good service, systemize follow-up, incentivize sharing or re-purchase, then you will gain from lifetime customer value.

Remember: the purpose of a sale is to gain a customer!

SCENARIO 2: Improving Ad CTR but not improving anything else

  • 500,000 AD IMPRESSIONS per month
  • Average CLICK-THROUGH RATE (CTR) of 5% (IMPROVED)
  • Average COST PER CLICK (CPC) of $0.75
  • Average sales CONVERSION RATE (CR) of 1%
  • AVERAGE ORDER VALUE (AOV) of $50
  • GROSS PROFIT (GP) margin of 40%

= $12,500 SALES INCOME

ADWORDS spend for month = 25,000 clicks @ average $0.75 CPC = $18,750
Cost Per Acquisition (CPA) of $75 ($18,750 ad spend divided by 250 sales)
40% gross margin on $12,500 of sales = $5,000

PROFIT / LOSS = $5,000 gross margin MINUS $18,750 ADWORDS spend = $13,750 GROSS LOSS

NOTE

So all we’re doing in the example here is worsening the loss by only improving the ads click through rate (by writing more compelling ads). Instead, we MUST fix the issues on the website to increase sales conversions, increase average order value and improve customer experience BEFORE we work on improving the ads copy and relevance to simply improve CTR.

SCENARIO 3: All round improvements

  • 500,000 AD IMPRESSIONS per month
  • Average CLICK-THROUGH RATE (CTR) of 5% (IMPROVED)
  • Average COST PER CLICK (CPC) of $0.50 (IMPROVED)
  • Average sales CONVERSION RATE (CR) of 3% (IMPROVED)
  • AVERAGE ORDER VALUE (AOV) of $60 (IMPROVED)
  • GROSS PROFIT (GP) margin of 40%

= $45,000 SALES INCOME

ADWORDS spend for month = 25,000 clicks @ average $0.50 CPC = $12,500
Cost Per Acquisition (CPA) of $16.67 ($12,500 ad spend divided by 750 sales)
40% gross margin on $45,000 of sales = $18,000

PROFIT / LOSS = $18,000 gross margin MINUS $12,500 ADWORDS spend = $5,500 GROSS PROFIT

NOTE

Once we get everything improved on the website then we can improve the ads, improve relevance and CTR and quickly get into strong profits from the same number of original Google search impressions.

Keep working on improvements to ALL areas to increase profits and ensure you also add all customers to your email list and send out 1 or 2 emails a month to promote offers, new products etc.

In Summary:

  • Write your ads copy relevant to your search audience (carefully targeted) and eye-catching with compelling offers or enticing messages (improves Click Through Rate). This will improve your ads Quality Score and in turn, this can reduce your Cost Per Click
  • Direct the ads to the exact product or category page that is relevant to the search term
  • Give potential customers what they are looking for quickly and with great user experience and make the checkout process slick, quick, and secure (improves Conversion Rate)
  • Include one or two relevant upsell offers to try to increase Average Order Value
  • Keep working on the above to continuously improve every process to be the best it can be
  • Encourage customers to share their purchase on social media, create a review video on YouTube, or write a product review. User Generated Content (UGC) is very powerful!
  • Keep customers who have signed up to your email list, updated on new offers and incentivize them to buy again with special discount codes ONLY available to existing customers (make them feel special)
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Author: Aliva Tripathy

Taking out time from a housewife life and contributing to AxiBook is a passion for me. I love doing this and gets mind filled with huge satisfaction with thoughtful feedbacks from you all. Do love caring for others and love sharing knowledge more than this.

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