Formula (Number) One

by Common Thread Collective Collaborator

Jul. 09 2018

Visitors times conversion rate times average order value equals revenue. That’s the 10-word spell that, when deployed correctly, magically lifts your revenue. Needless to say, we’re big fans over here.  

In fact, I’m typing this blog right now under the glow of a giant, metal Vegas-marquee-style Formula sign that greets us every morning as we arrive to work.

So why turn an algebra exercise into a literally cast-iron way of life?  

The beauty of the formula is that it gives any type of business a limited choice of paths to reach its revenue goals. This allows you to focus on influencing the one variable that you think will result in your greatest success, and then channel team efforts into running that variable through the roof. Here’s a breakdown of each ingredient of the Formula, and how you can create your own revenue-boosting concoction:

Visitors: This is the bread and butter of internet advertising—getting eyes on the prize. There are 14 billion total eyeballs out there, and the internet offers the tantalizing possibility that many of them could be glued to your site right now. Facebook alone has a stunning 2.20 billion users, and your site is just a click away from (a thoughtfully targeted portion of) all of them.

This is where advertising channel matters. Creating smart, relevant, interesting content that grabs people’s attention is the driving factor here. Facebook’s ability to find already-interested customers is what sets it apart from other channels; and pairing great creative with the right audience means your website traffic will go up (and having an expert team of Facebook advertising experts doesn’t hurt…)

Focus Here If: Your product’s benefit is inherently easy to understand, a lower price point, or is an otherwise low-risk buy for the customer. In that case, huge traffic often translates to huge sales.

Of course, your web traffic doesn’t matter if you have a low...

Conversion Rate: This is the percentage of visitors to your website who perform a desired action (in your case, making a purchase). Conversion rate is the most nebulous of the variables, because it can’t be attributed to any one thing. The following factors affect conversion rate:

Website aesthetic (if your site looks like trash, people won’t buy, especially at a high price point)

Website construction (if user interface makes it difficult for the customer to figure out how to make a purchase, they won’t make a purchase)

Traffic quality (If the people coming to your site clicked on your ad but aren’t expecting to be sold your product, they won’t buy)

On-site education (If people land on your site and you don’t do the extra work to teach them why they want your product, they won’t buy)

Seasonality (If it’s not the time of the year people buy your product...they won’t buy your product)

And many more.

Focus here if: you’re getting a lot of traffic and interest, but an unusual number of people are bouncing without making a purchase. Conversion rate is tricky, and you should have it constantly in mind as you work on other parts of your ecommerce flow.

Average Order Value:

Simply, how much money people are spending every time they hit the “place order” button. (Here’s a great blog from CTC’s own Adrianne Verheyen on tips to boost this number). How can you incentivize people to add just one more thing to their cart? Whether it’s a free shipping threshold or a bundle deal, thinking of creative ways to boost AOV is vital to  your business’ health.

Additionally, it’s helpful to think through AOV when establishing the initial price point for a given product. If your product is perceived as a low-risk purchase (like a T-shirt), it’s best to keep the AOV right on the threshold of seeming “too expensive.” But if your product is high-risk or requires a high threshold of understanding, it’s a good idea to set a high price point—the elevated price will a) validate your product as “premium,” and b) balance out the inevitably lower conversion rate.

Focus here if: the average lead time on sales of your product tends to be longer.

Here’s why the formula is so helpful: whenever you run into a problem, you don’t have to pick from an infinite well of possible solutions; rather, you can draw from three simple buckets. While running a business is never easy, relying on the formula can take away a lot of guesswork and set a firm foundation for any ecommerce decision.