Increasing sales conversion rates offers a greater ROI than what you can get from optimizing your traffic; either from paid or earned media. The math is simple – even if many never do the calculations. Companies with higher conversion rates almost always have better marketing efficiency ratios (net contribution/marketing expenses.) The upside is that these companies make more money and that’s a good thing. The downside is that it’s hard work to accomplish better marketing efficiency ratios. These companies are led differently; they have higher levels of collaboration and higher standards of accountability.
The top performing companies consistently convert visitors to sales at rates in the double digits. They’ve been doing that for years, while the vast majority converts at low single-digit rates. The gap between the top performers and the middle of the pack continues to grow. I have two questions for their CEOs.
1a. If you sell online, do you convert at least 10 percent of your visitors to sales?
1b. If your online efforts are geared toward lead generation, do you convert at least 20 percent of your visitors to leads?
2. So do you know exactly why your company doesn’t convert better?
It can’t be that the company’s already making so much money that it doesn’t matter. It can’t be that the company doesn’t care enough about their potential customers to make sure they get exactly what they were looking for when they visit. It can’t be that someone in the company is already “responsible” for conversions so you stopped worrying about it.
If as CEO, you had a sales force that was underperforming the market leaders by a factor of 500-1000 percent, you couldn’t just point to the VP of sales. As the CEO, you would also be accountable. Of course, this assumes that you have the equivalent of a VP of sales responsible for the marketing efficiency ratio. In my last column, “Leadership for the Marketing Optimization Team,” I explained what kind of people companies need and what kind of backgrounds they should have.
What follows are the more likely reasons that companies underperform online. Perhaps the CEO still doesn’t know what factors of the customer experience impact sales. Perhaps the CEO still doesn’t know what projects or what departments to favor. Perhaps the CEO still simply doesn’t know what truly needs to be done to optimize the marketing efficiency ratio.
I’m disappointed. I feel somewhat responsible after evangelizing about accountable marketing for more than a decade. I suspect if these companies’ shareholders knew just how much money was being left on the table they would be too. Ignorance is not an excuse and in business it isn’t bliss.
Nobody has been involved in e-business for two decades. There are too many not-quite experts, over-promising tool vendors, and self-proclaimed pundits demanding attention. It’s the responsibility of executive management to create an expansive environment where learning in ongoing silos is less important than customers, and optimization isn’t a project but rather a habit of great execution.
Stop paying attention to what your peers are doing (so-called best practices) and start benchmarking against your customers’ expectations. Can you meet or exceed those expectations? Your conversion rate will be a leading indicator. Conversion rates are a measure of your ability to persuade visitors to take the action you want them to take. They’re also a reflection of your effectiveness at satisfying customers, because for you to achieve your goals, visitors must first achieve theirs.
Columnists receive a lot of feedback. As a reader of this column, you’re likely part of the choir I’ve been preaching to for years. I hope you enjoy the column and find it useful. If you agree or disagree with this column, then please direct your comments not only to me, but also to the CEO.
This made my day – “it’s hard work to accomplish better marketing efficiency ratios. These companies are led differently; they have higher levels of collaboration and higher standards of accountability.”
As the CEO of small company, it’s rather simple to take responsibility for Conversion. When you begin to grow, it gets increasingly hard as CEOs tend to not dig into that data.
When we help corporations, I often have to play that role and get all department heads to work together. But conversions do reflect that extra effort.
Not an easy thing to do at all. Great post, though!
I don’t see how you can throw random benchmarks in the air (10 and 20 percent conversion rate) when there are so many different factors that go into whether someone converts or not. For example, with efforts like content marketing becoming popular, the motivation of the user isn’t always to buy.
These are rules of thumbs and their are more exceptions than you can possibly be aware of (I’ve seen countless having been optimizing sites for conversion since 1998.) This is meant to have people question their results. Nevertheless, 10/20 are good general rules of thumb.
I’d love to hear the stories of some of those CEO — the different ones — and the companies they run. How do successful CEOs get up the learning curve on these issues at winning companies? I’ll certainly stay tuned.
Yes, the CEOs of that world who do Online Business really need to know about conversion. And not about tool costs. That is the CFO task. But the CEO needs to understand the details as well.
I strongly agree that it is a good idea to start benchmarking against your customers’ expectations. Don’t focus on what your competitors are doing. Better focus on your customers’ needs.
But I also agree with Tommy Swanson that a target of 10% conversion rate is randomly chosen. From my point of view a reasonable conversion target depends on your industry, on your competitive environment, on your pricing strategy.
Selling at insanely low price prices will result in a fantastic conversion rate but in no profit at all. IMHO as a CEO it is much better to try to minimize your customer acquisition cost: How much does it cost you to win a new customer? Maximizing your conversion rate is one part of the equation, but not the only one.
Do you want a simple example? Given you booked two keywords on Google Adwords:
Keyword #1: 10% Conversion rate, 50 cent per click
Keyword #2. 5% Conversion rate, 15 cent per click
Focussing on keyword #1 and abandoning keyword #2 will result in a conversion rate increase. Winning a new customer with keyword 1 will cost you $5. But you can win a new customer with keyword #2 for just $3.
In other words: the keyword with the lesser conversion rate is the more profitable one.
As a CEO, is it really a good idea to focus on conversion rate only?
I’m happy that you embrace the idea of benchmarking against customer expectations. If we offer no guidance or rule of thumb conversion rates then our readers/ customers aren’t happy. We don’t think CR is the most important metric – you can see that from – “Companies with higher conversion rates almost always have better marketing efficiency ratios (net contribution/marketing expenses.)”
Why do you offer rules of thumb when they are misleading? Any CEO with just a 5% conversion who reads this article must think that there is something wrong with his customer acquisition process. But this is not necessarily true.
“Marketing efficiency ratios” sound very sensible to me: “Conversion Rate” as a mathematical function has one input parameter only: “visitors”. “Marketing efficiency ratio” has multiple input parameters: “visitors”, “marketing budget”, “customer lifetime value”. IMHO it much better to try get the biggest bang for the buck in online marketing than optimizing CR only.
Unfortunately all those CR consultants praise CR optimization as the holy grail. But benchmarking your CR against your competitors’ CR does not mean anything and benchmarking against other industries can be misleading too.
For example “marketing efficiency ratio” would mean to measure customer acquisition costs against your customer lifetime value. As a CEO I would measure that – and I can assure you: This is an important metric in my company.