<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=1375589045796407&amp;ev=PageView&amp;noscript=1">
Why the ‘R’ in CRO should stand for ‘Revenue’

Why the ‘R’ in CRO should stand for ‘Revenue’

conversion-revenue-optimisationEver since the term CRO was coined, the R has stood for “Rate”, as in Conversion Rate Optimisation.

Optimisation refers to continuous improvements or ongoing increases of something to its optimal state.

Conversion is the action you want someone to take – whether that be to download an e-book, click through to another page, request a free trial, make a booking or buy a product.

The percentage of visitors who perform these conversions is reflected in the Conversion Rate.

It may seem logical that if you get a higher Conversion Rate, you’ll also get higher revenue, but in fact that’s not always the case. There are other metrics which more clearly signal the success of, or opportunities on, your website. And it’s these metrics that will give you increased revenue.

If you have a website that is meant to make money (rather than generate leads) – such as an e-commerce site – then we would suggest that you need to be looking at measurements beyond the Conversion Rate to metrics closer related to actual revenue.

Read on to discover why, if you have a revenue-generating website, a focus on Conversion Rate alone may be costing you and your business dear.

Conversion Rate Optimisation – a definition

Here’s how three of the biggest names in online optimisation define CRO. You’ll see that they all focus on Conversion Rate not revenue.:

“The process of optimising your site to increase the likelihood that visitors will complete that specific [conversion] action.”

Econsultancy

“Finding why visitors aren’t converting and fixing it.”

Moz

“The practice of continually improving your website or landing page’s capacity to convert visitors into leads or customers.”

Unbounce

Why Conversion Rate is not the best optimisation metric

By contrast, we believe that the most important part of CRO is to increase revenue. Our stance isn’t just to differentiate ourselves. There are two key reasons why we don’t focus solely on Conversion Rate:

1. A high Conversion Rate doesn’t mean high revenue

In a past life, I worked for a travel business whose Conversion Rate rocketed as Christmas approached. Did we celebrate this sudden success of our website? No. Conversion Rate went up only because visitor numbers went right down.

The fact is that, unlike traditional e-commerce, peak trading for travel comes in January. Pre-Christmas traffic and sales are always low, because most people are spending their money on gifts, not holidays – but those who do come to the site are highly motivated to buy.

If you want to quickly increase your Conversion Rate, there are a couple of simple ways to do so:

  • Lower the price of all your items to silly money – people will flock to your website and buy by the dozens
  • Reduce traffic so that only really motivated visitors reach your website

Tempted by either of those options? No, I thought not. And that’s because of the second reason…

2. Conversion Rate doesn’t reflect what actually matters to the business

Below is an example of two websites, one with a healthy Conversion Rate of 10%. The other has only half that, with a Conversion Rate of just 5%. They both have the same number of visitors each month.

  Website A Website B
Conversion Rate 10% 5%
Average monthly visitors 400,000 400,000
Average monthly orders 40,000 20,000
Average Order Value £15 £50
Average monthly revenue £600,000 £1,000,000

Which website would you rather be responsible for? The one with the higher Conversion Rate or the one which generates a million pounds of revenue?

It just goes to show that Conversion Rate is one metric of website success. But you can’t always bank it.

What metric should your e-commerce business use to measure your online success?

blind-spotAs the example above showed, Conversion Rate has a ‘revenue blind spot’ which means it doesn’t give you the complete picture. Not the ideal metric to optimise for then.

That’s why we optimise for Revenue per Visitor (RPV), which captures both Conversion Rate and Average Order Value (AOV) in a single metric.

Revenue per Visitor is calculated by:

  • The value of the REVENUE generated ÷ the NUMBER of visitors to the site

Mathematically, that’s the same as:

  • The CONVERSION RATE x the AVERAGE ORDER VALUE.

Both these methods above will give you the same answer.

In the example above, Website A has an RPV of £1.50 whilst Website B has an RPV of £2.50, calculated as follows:

  • Website A: Revenue of £600,000 ÷ 400,000 visitors = £1.50 RPV
    (or 10% Conversion Rate x £15 Average Order Value)
  • Website B: Revenue of £1,000,000 ÷ 400,000 visitors = £2.50 RPV 
    (or 5%Conversion Rate x £50 Average Order Value)

In other words for every visitor to website B, £2.50 worth of revenue was generated

RPV is a more appropriate e-commerce metric

To demonstrate just how reliable and useful the RPV metric is in terms of contributing to your business, here are three different scenarios:

Scenario 1 – 20% higher Conversion Rate

In the first, Conversion Rate has gone up by 20% from 5% to 6%, resulting in 4,000 extra orders, £200,000 worth of extra revenue and consequently, RPV has increased by 50p to £3.00.

  Website Scenario 1
Average monthly visitors 400,000 400,000 Traffic volumes have not changed
Conversion Rate 5% 6% Conversion Rate has increased by 20%
Average monthly orders 20,000 24,000 As a result, there are an additional 4,000 monthly orders
Average Order Value £50 £50 There has been no change to AOV
Averge monthly revenue £1,000,000 £1,200,000 Average monthly revenue has increased by £200,000 as a result of the increase in orders
Revenue per visitor £2.50 £3.00 Consequently RPV has increased to £3.00

Scenario 2 – 20% higher AOV

In the second, AOV has gone up by 20% from £50 to £60, resulting in no extra orders but £200,000 worth of extra revenue and consequently, RPV has increased by 50p to £3.00.

  Website Scenario 2
Average monthly visitors 400,000 400,000 Traffic volumes have not changed
Conversion Rate 5% 5% There has been no change to Conversion Rate
Average monthly orders 20,000 20,000 Average monthly orders have not changed
Average Order Value £50 £60 AOV has increased by 20%
Averge monthly revenue £1,000,000 £1,200,000 Average monthly revenue has increased by £200,000 as a result of the increase in AOV
Revenue per visitor £2.50 £3.00 Consequently RPV has increased to £3.00

Scenario 3 – 20% higher conversion & AOV

In the third, Conversion Rate has gone up by 20% from 5% to 6%, resulting in 4,000 extra orders. In addition, AOV has gone up by 20% from £50 to £60. This has led to £440,000 worth of extra revenue and RPV has increased by £1.10 to £3.60.

  Website Scenario 3
Average monthly visitors 400,000 400,000 Traffic volumes have not changed
Conversion Rate 5% 6% Conversion Rate has increased by 20%
Average monthly orders 20,000 24,000 As a result, there are an additional 4,000 monthly orders
Average Order Value £50 £60 AOV has increased by 20%
Averge monthly revenue £1,000,000 £1,440,000 Average monthly revenue has increased by £440,000 as a result of the increase in orders and AOV
Revenue per visitor £2.50 £3.60 Consequently RPV has increased to £3.60

 

What does this mean for you?

If you’re responsible for improving the effectiveness of your website, it may be time to stop thinking your job is to increase website’s Conversion Rate. Your job is to increase the revenue you generate from your site, be that by increasing your website’s Conversion Rate, Average Order Value or both.

There, is, however, a caveat to this. There are times when RPV may not be the best option. It is not ideal for sites with low traffic or low sales, or if you’re testing an area of the site with low traffic or low sales. In situations like this, you may have to run the test for so long to get a statistically valid result that it’s just not practical. If that’s the case, then Conversion Rate is more useful. (Note: You can find out more about using RPV to measure split test results in our blog What are the best KPIs to measure a split test?)

Conversion & Revenue Optimisation – will it ever take off?

Where do you sit in this debate? Are you convinced of the value of measuring conversion AND revenue? 

If you’ve seen the benefit in optimising your website for conversion and revenue, and you’re interested in getting further help from the experts, read our ebook below for 8 questions you must ask to find, hire and get great results from CRO professionals.

New Call-to-action

 
 

Get a Free Eyetrack

A visual map of your landing page

Yes Please show me what
my visitors look at

Thanks - but no thanks