Some Advice for Online Retailers

By David Levy, Associate Director, Strategic Partnerships

With the undeniable success of paid search as a marketing medium, we are often quick to assume that when we’re in need of a “biggest bang for your buck” initiative, that simply pumping more money into paid search is the answer.

To quote the incomparable Lee Corso, “not so fast my friend.” This certainly can be the case, but before you can make that determination, I’m asking that you consider this – instead of spending money to get incremental traffic, might your money be better spent on converting a higher percentage of your existing traffic? Here’s an example:

Let’s say your benchmark data, across all visitor types, for the past 30 days is as follows (and for simplicity, let’s assume these numbers hold steady for each successive 30-day period):

Visitors: 100,000
Conv. Rate: 3.0%
Orders: 3,000
Avg. Order Val.: $150
Revenue: $450,000

Now, let’s say that you have an incremental $20,000 you can spend over a 30-day period, and that your first inclination is to spend that money in paid search. Assuming the same conversion rate and a $1 CPC, here’s what that scenario looks like:

Cost: $20,000
CPC: $1.00
Clicks (Visitors): 20,000
Conv. Rate: 3.0%
Orders: 600
Avg. Order Val.: $150
Incremental Rev.: $90,000
ROI: $4.50

$90k in incremental revenue at a $4.50 ROI, not bad.

On the other hand, you could spend that money investing in anything from a simple landing page test to optimizing your shopping cart checkout process – each designed to improve the conversion rate of your existing traffic, rather than paying for incremental traffic. Assuming the same $20,000 cost (creative consulting, implementation, etc.), and that it delivers a 0.8 percentage point increase in your conversion rate (from 3.0 – 3.8%), here’s what that delivers over a subsequent 30-day period:

Visitors: 100,000
Conv. Rate: 3.8%
Orders: 3,800
AOV: $150
Revenue: $570,000
Incremental Rev.: $120,000
Cost: $20,000
ROI: $6.00

All of the sudden, you’ve bumped up your incremental revenue by 33% ($90k to $120k) without increasing your cost. Moreover, you’ve invested in a project that will not only increase your conversion rate for that 30-day period, but likely for several months to come…leading to exponential ROI because you still only invested that initial $20,000. Meanwhile, the investment in paid search drove reasonable results…but results that can only be enjoyed while money is being spent.

There’s no doubt that I’ve certainly made some assumptions here. And there’s also no doubt that, in many cases, it absolutely makes sense to invest incremental dollars in paid search.

All I’m saying is…do the necessary research before you make the decision, or you might be leaving money on the table.