What is Conversion Rate Optimization in Ecommerce?

Lucas Credie
August 19, 2022
min read

Conversion Rate Optimization (CRO) is the process of continuously working on a site in order to increase the percentage of users that take a desired action.

In Ecommerce, the desired action could be for a customer to purchase an item. So your conversion rate would be defined as the number of purchases divided by the number of visitors during a specific period of time. This means that if 100 people go to your site and 3 purchase a product you have a 3% conversion rate.

There are other types of actions and goals you can aim for to optimize as a business, here are some:

  • Ecommerce: Product sales, Add-to-Carts, Email signups
  • Services: Appointments booked, leads converted
  • Software as a service: Downloads or installs, new subscribers

How does the optimization process look like

Optimizing for conversions is all about testing and data. As business owners, we like to think we know what would make people buy our products and while that is partially true the data never lies and sometimes the results are surprising.

A classic way to test if a page converts better is to split the traffic into 2 groups or more and show each group a different page in the same URL. For Ecommerce that is usually done with product pages as most traffic is directed there when testing for purchases. So if you get 10.000 visits every day, send 5k to version A of a product page and the rest to version B.

If the audience is the same you should be able to test which page converts more, so if group A has more purchases then you should keep it. Once you have a winner you can now A/B test again with the winner and another option.

Note that the process of A/B testing is continuous and large Ecommerce brands are working constantly on this. Amazon is an extreme example of optimization, where everything is designed and tested with the goal of increasing purchases.

When should you optimize for conversions

You should technically always be striving to improve conversions. That said, running a proper CRO program can be expensive and time consuming and the results will be relative to your scale. This means if you are not making much yet, that 0.1% increase in conversion is not going to generate enough revenue compared to how much you invested to get there. For Amazon that 0.1% could mean tens of millions more in revenue, which means they spend a lot of resources on testing and optimizing for conversions.

My advice is for you to see what is the industry standard in conversion rate for your niche. This site has some good statistics on D2C Ecommerce: https://www.statista.com/statistics/1106713/global-conversion-rate-by-industry-and-device/

How far are you from the industry standard? Would a small increase (0.2%) make a difference worth investing thousands of dollars every month?

Here is an exercise to figure out if it is worth starting with CRO or not. Here is what you need:

  • Industry average conversion rate in your niche
  • Your conversion rate
  • Your average order value (AOV)

Imagine this imaginary scenario: you have a Sporting Goods store. The average conversion based on data is 2% and your conversion is 1% with an AOV of $200.

Let’s say you currently get on average 10.000 visits a month. At 1% conversion it means 100 out of 10k people buy. With an AOV of $200 your revenue is around 20k/month and profit is 4k considering a 20% margin.

Technically if you get to 2% conversion rate you would double your business but the truth is that it is very hard to increase conversions. You could have a team working hard for months and only have a slight increase to show for.

So here is my advice: Unless a very small percentage increase (0.2%+) makes a huge difference in your revenue and justifies the investment, there are other things you can invest your money in to grow.

You can still have your pages audited and have experts look for low hanging fruits that could have a positive impact in your conversions, but thinking about increasing AOV, LTV or lowering your cost of acquisition is far more beneficial at this stage. Take a look at email marketing, subscriptions and Loyalty Programs, they are usually easier to implement and can impact your business a lot more at this stage.

If you are at the level where it makes sense to do CRO get in touch. If not we can still audit your site and look for the low hanging fruits that could be impacting your conversions or other metrics until you are at that level.

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