Selling Yourself Short on Traffic

I recently discussed the importance of maximizing conversion of the traffic you already get before spending money, time, and energy trying to attract more traffic. Gather ’round for a little fable about the application of this principle in the case of Widgets-R-Us versus Widgets-4-You.

Both companies are in the same business (yes, selling widgets). They have similar sales volumes, an average order size of $25, and a customer conversion rate of 2.0 percent, which, according to shop.org, exceeds the industry average of 1.8 percent. (Determining your own site’s customer conversion rate is easy. Go to this calculator, plug in just two numbers, and you’ll know it in seconds.)

Both companies want to improve their sales in the coming year and are designing 12-month marketing campaigns to drive more traffic to their Web sites. Their marketing budget is $5,000 a month, which they determine will drive 20,000 new visitors per month. They first analyze their numbers to see if the campaign is going to be worthwhile. With a 2 percent customer conversion rate, 20,000 new visitors will generate $10,000 in new business per month. Satisfied, both companies decide to go forward.

But there is one crucial difference. The folks at Widgets-4-You happen to be regular readers of ClickZ’s Converting Web Site Traffic column and are planning to incorporate Future Now‘s approach into their online sales tactics. Within the walls of their conference room, the movers and shakers at Widgets-4-You reach a crucial decision: Before they invest more money in their upcoming marketing campaign, they decide to invest some time, energy, and money improving their Web site’s customer conversion rate. They make several important but simple alterations to their site, many based on principles they have read about in this very column, and they are able, in surprisingly short order, to double their conversion rate from 2 percent to 4 percent. (Dear fable reader, a 100 percent improvement is not a fable. Many clients have achieved that and more.)

So, over the course of 12 months, both companies spend $60,000 to drive 240,000 new visitors. Here’s how the results play out:

Traffic Campaign	Widgets-R-Us	Widgets-4-You
Investment	$60,000	$60,000
New Visitors	240,000	240,000
New Orders	4,800	9,600
Customer Acquisition Cost	$12.50	$6.25
New Sales	$120,000	$240,000

Widgets-4-You is ahead by $120,000 in sales on exactly the same marketing budget! But the advantages over Widgets-R-Us don’t stop there.

Look carefully at the chart. Widgets-4-You now spends only half the amount that Widgets-R-Us spends on customer acquisition. Also, the changes Widgets-4-You made in the online sales process have increased the customer conversion rate to 4 percent permanently, while Widget-R-Us trudges on with its unimproved rate of 2 percent. The next time both companies consider a campaign to drive even more traffic, Widgets-4-You will have a powerful competitive edge: It can pay more for the traffic (whether to get more traffic or better-qualified traffic) yet still come out ahead, not only in more sales but also in higher profits. Even if it doesn’t pay more for the traffic, it will still get twice as many orders from the same traffic as Widgets-R-Us. And if it continues to improve its customer conversion rate by even small increments (which it can finance with the increased profits), its customer acquisition cost will continue to decrease and its competitive advantage over Widgets-R-Us will grow even stronger.

This fable does have a happy ending — at least for Widgets-4-You. It goes on to grow and prosper by constantly improving its customer conversion rate, building site traffic, and delighting customers with exceptional value, quality, and service. Widgets-4-You becomes the dominant online player in the widget category, and all of its employees pocket millions in an initial public offering (IPO) — even the shipping clerks. Oh yes, dear fable reader, successful IPOs for online businesses will be real again, not fables, but only when companies can prove their ability to increase both sales and profits.

For those of you who love to hear the morbid details, Widgets-R-Us winds up you know where. When it finally declares Chapter 7, the CEO is still whining about how great the business plan was and how all the company needed was more venture-capital cash to achieve “a critical mass of visitors.” Do these types ever figure out what went wrong? No, they don’t read this column. Happily, dear fable reader, you do.

And the moral of this fable? Selling yourself on the idea that more traffic will solve your problems, or letting someone else sell you that idea, is selling yourself short. Don’t sell yourself short on traffic. Improve your customer conversion rate, and you will enjoy both more sales and more profits out of whatever traffic you get.