Conversion Rate Optimization (CRO) is the most essential activity that your business should be involved in. It helps you convert visitors into customers and that’s the whole point of doing business, right? I mean you don’t want visitors to leave your website without converting.
And this is what makes conversion rate optimization more important than anything else. According to Rand Fishkin, conversion rate optimization is the most important marketing activity. This makes sense when you see case studies like Moz that made $1 million with CRO and Intuit increased conversion rate by a whopping 211%.
CRO has several benefits that your business enjoys when you start investing in it. The 3 benefits that are discussed below will show you the real power of CRO and how it will help you grow your business exponentially. Here is an overview of what makes CRO the best marketing activity for your business.
1. Get More Free Customers
Conversion rate optimization increases sales which means your business gets more customers. This is something obvious. Conversion optimization emphasizes on increasing the number of visitors who take an action on your website. This could include anything ranging from for submission to adding a product to the cart to newsletter subscription to a product purchase.
The best thing about CRO is that you get more customers with the same traffic at no additional cost. You don’t have to increase traffic to get more conversions but yes, you have to spend resources on CRO.
Let’s take an example.
Your website has a conversion rate of 2% and your website gets 1000 organic visitors per month. This means your website converts 20 visitors per month. After optimizing your website for conversions and running multiple split tests, the conversion rate is increased to 4%. Now you will convert 40 visitors per month with the same traffic.
You don’t have to increase traffic. There is no need to create new marketing campaigns. CRO gives you more customers with the exact same traffic. This makes it one of the most essential marketing activities for your business. You can generate sales without driving more traffic to your website and it works every single time without any issues whatsoever.
2. An Increase in Profit
What does an increase in conversion rate mean? More profit, of course.
The good news is that you get to increase profit without increasing the cost. The cost you incur during the CRO process is related to the CRO campaign – everything else remains the same. Overall variable cost and fixed cost don’t change.
A minor increase in conversion rate, say 2%, can significantly increase the profit of your business. This is because it impacts sales and brings new customers without any expansion, acquisition, cost-cutting, joint ventures, marketing campaigns, or any funding.
The cost of conversion rate optimization, tools, and other resources do add to the equation. However, it is offset by the increase in profit. Here is how you calculate profit:
Profit = Revenue – Cost
And this is how you calculate revenue:
The traffic and average order value remain the same, but the conversion rate has changed. A one percent increase in conversion rate can increase your revenue by $10K keeping traffic and average order value exactly the same:
Since your cost is also static, this revenue increases profit by $10K straightaway. This shows the power of conversion rate optimization. It increases revenue that is all profit.
It shows how CRO can help your business increase profit by potentially doing nothing.
But this isn’t all…
3. Reinvest (To Get More Traffic)
This is the step where it gets interesting.
You have successfully increased the profit of your business with CRO. How you will use the profit is what’s important and will prove to be a game-changer.
Its time to apply the most powerful force in the universe to grow your business exponentially: The compounding interest. It simply refers to reinvesting your earnings back to your business instead of using it. Here is what happens when you reinvest money in your business:
You can generate enormous returns in a few years when you start reinvesting. This is how you can practically use compounding interest for business growth.
It means the additional profit you earned in the previous step should be reinvested into the business – and not withdrawn.
Where you should reinvest it?
To get more traffic.
Refer back to the example. With an increase of 1% conversion rate, the revenue increased to $60K from $50K:
You must reinvest this $10K to acquire more traffic. Let’s assume your investment doubles the traffic. This is how the updated equation will look like:
Your revenue doubled – amazing, right?
Nothing else was changed. Everything remains the same including conversion rate. All you have to do is reinvest your profit to get more traffic and it will apply increase revenue exponentially.
The more you earn, the more you reinvest – and it makes your business highly competitive. Applying compounding interest will open new doors of success and your business will grow at an alarming pace.
This is what a mere 1% increase in conversion rate can do to your business. Sounds interesting, right?
Don’t get too excited, there is more to the equation…
Audience Insights for More Growth
Your business is growing at an alarming pace at this stage, but you haven’t changed anything else in the equation. Imagine if you change any other variable in the equation.
Let’s say the average order value.
If you increase the average order value from $100 to $105, it will further increase your revenue.
Or, an increase in lifetime value will have a significant impact on overall revenue.
How you can do it?
By understanding your customers.
Let me explain.
Here is the formula for calculating customer lifetime value:
You need average sale value, average repeat transaction, and retention period. You need to increase any or all of these three variables to increase CLTV. The average transaction value is somewhat constant as you can’t increase the price of your product. The other two variables: Average repeat transaction and retention are related to customer retention.
What this means is that you need to develop a healthy relationship with your customers to retain them. You need to provide them with an exceptional customer experience that is data-driven. Research shows that improving customer experience improves retention, customer satisfaction, and cross-selling and up-selling:
Improve customer experience and you will be able to increase customer lifetime value fairly easily.
Now, you need data to understand your customers better and to improve customer experience. What they like, what products to recommend, when to recommend, what type of sales page to use, what color theme to use, what type of CTAs you should use, and so on.
The best part: CRO provides you with this data.
The more A/B tests you run, the better you understand your customers. It gets easier to offer them more of what they like.
In the absence of CRO, the only data you have is from your analytics and CRM tools. When you run CRO campaigns, you get to know a lot of things that no tool can capture. For instance, if turning the CTA button color red didn’t work, it means you don’t need to have red CTA buttons if you want to increase the conversion rate. You can use this information to generate repeat orders and to better connect with your existing customers.
CRO gives you access to audience insight which lets you increase customer lifetime value. Add this to your equation and nothing can stop your business from achieving new heights.
What You Should Do Now?
Get started with conversion rate optimization. It’s the best thing you will ever do. It will help you increase sales, revenue, and profit. Conversion rate optimization is a must-have continuous process that’s more important than any marketing campaign. Marketing gives you traffic but CRO converts that traffic. Don’t underestimate it.
However, one of the major issues with CRO is that it is a time-consuming process and the results aren’t guaranteed. You could run tests for a few good months without a 0.1% increase in conversion rate. This is where conversion optimizers and businesses get frustrated.
You don’t have to lose hope.
CRO is a time-consuming process that needs quite some time to show results. You should be consistent. The moment you are able to increase conversion rate, reinvest your profit to drive more traffic. This is the basic rule for exponential growth.
The 3-step CRO process works for every business irrespective of its size, industry, traffic, and revenue. There are no constraints. It doesn’t matter if you have a startup or you are a SaaS founder, initiating a CRO campaign and using this 3-step process will always work.