Turbocharge Your Digital Marketing With RPV
The traditional economic model for an ecommerce company involves two tasks: driving traffic to the site, then converting that traffic into revenue. Companies increase traffic through a combination of marketing techniques such as SEO and advertising (social or search), to name two of the most popular ones. The goal of increasing traffic typically receives most of the marketing mindshare, as well as budget.
Because of this attitude, the lower half of the funnel, where the conversion happens and revenue is generated, can become a bit of an after-thought. This perspective is particularly damaging in economic times such as these, where marketing budgets are being scrutinized, squeezed, or even shrunk – limiting a marketers ability to increase traffic to the top of the funnel. That’s why it’s more important than ever to find ways to maximize the bottom half of the funnel and convert more traffic into revenue.
The most common approach to monetizing traffic is to focus on the conversion rate. The concept is simple: increase the conversion rate and you’ll generate more revenue on the same amount of traffic. This approach is necessary, but not sufficient. To truly maximize the revenue from your existing traffic, consider focusing not just on the percentage of visitors converted, but how much revenue each visitor generates, i.e. the revenue per visitor, or RPV.
RPV is really the most important metric for any ecommerce site. At the basic level it is simply the total revenue for the site divided by the number of visitors. But baked into RPV are three key metrics:
- Conversion Rate (CR).
- Average Order Value (AOV).
- Returning Customer Percentage (RCP).
But here’s the magic part. If you increase both the conversion rate and your AOV, your revenue will jump dramatically more than the sum of each metric. It’s almost like 1+1=3! Let’s look at an illustration.
An ecommerce site for women’s apparel gets monthly traffic of 1M visitors. Of that traffic, 20% are returning customers and 80% are new ones. The site generates revenue of $1.8M on that monthly visitor count, and monthly sales of $18,000.
If we use the formulas above, it means their conversion rate is 1.8% and their AOV is $100.
Let’s set a target of increasing our key metrics by 15%. That means we have a target of increasing the conversion rate from 1.8% to 2.07%; AOV is increase from $100 to $115; and boost RCP is to 23% from 20%.
If we had focused on just conversion rate or AOV, we would have expected an increase of 15% in revenue. Instead, here is what happens:
- CR went to 2.26%.
- AOV went to $117.
- Sales totaled $22,611.
- Revenue totaled $2.643M
The bottom line? We’re looking at a 47% increase!
Why the turbo boost? Our 15% increase in conversion rate gets us more customers, the AOV gets us more revenue per customer and the increasing the RCP brings those customers back more often. So you get a compounding effect.
I’m sure you’re saying, “That’s nice but how do you engineer those increases?” Simple — optimize for RPV.
With conversion rate optimization you use a test & learn process to gradually modify your site through a series of experimental changes, implementing the successful changes increases conversion rate. With RPV optimization, you follow the same process, but you conduct experiments on the three core metrics at the same time, with the goal of simultaneously improving CR, AOV and RCP. When you use this approach you identify interactions between the changes, for example, conversion rate changes that also improve RCP, etc.
Here are some ideas for experimentation and changes that we’ve seen work to increase increase your key metrics:
- Reduce site friction caused by response times, confusing navigation, etc.
- Review layout to ensure CTAs are easily accessible
- Reducing the clicks required to purchase
- Try differing text variations to ensure highest clarity
- Targeting your content(first time discounts for signing up to your email list, popup helper, testimonials).
Average Order Value
- Add a recommendation engine to suggest product choices based on customer properties and patterns
- Provide free shipping at order value threshold
- Offer discounts for add-on products
- Create bundled or packaged offers
Returning Customer Percentage
- Establish a customer loyalty program
- Send targeted email offers based on purchase history
- Recommend offers based on personas
- Streamline ordering process for customers
- Monitor and manage churn risk, e.g., reaching out to customers who have had a bad experience.
Many of these approaches can be executed at no or low cost and can generate results in weeks or months. Doing them simultaneously gives you the added boost of leveraging your returning customers. What’s more, the improved experience is likely to increase your referral rate and drive new customers to your site. And all with no additional advertising spend increase!