Consider this: You go into Google Analytics and see that your conversion rate is up month over month — yay! This means a greater percentage of your visitors are turning into customers, so you’re creating value…right?
Not necessarily. If you’re a digital marketer and you live and die by conversion rates, you could do long-term damage to your business. That’s because an increase in conversion rates does not automatically spell higher revenues. In this post, we’ll look at a brief hypothetical example to see why.
How to Avoid Being Fooled by a Jump in Your Conversion Rate
Say you’re reviewing your website’s month-over-month performance and you notice that visits ticked down from July to August:
And look — your conversion rate went up too…
Score! You can’t wait to tell the boss about this.
Lower Average Order Value — Wha???
So how much extra money did you make the business this month? Still in Google Analytics, you click over to average order value. Given your higher order numbers and conversion rate figures, you’re not expecting to see that average order value decreased from $3,198 in July to $1,599 in August:
…which means revenue decreased 66%:
And with that, you’re not so happy about your higher conversion rate anymore.
Stronger Conversion Rates Do Not Automatically Mean Stronger Sales
What the heck happened here? You worked like crazy to attract more customers to your website, which resulted in a larger percentage of them turning into customers. Good job.
But that’s not the end of the story. While your website is converting customers more efficiently, these customers are placing lower-value orders. Of course, you know Average Order Value is a component of that all-important equation, Customer Lifetime Value. If the decline in Average Order Value that you saw in August turns into a trend, your company’s customer lifetime value will go down (assuming everything else stays equal, of course). And that spells long-term decline for your business.
This is a quick illustration of the dangers of “optimizing” your website (and your business) for higher conversion rates to the exclusion of other KPIs. Conversion rate says quite a bit about your website’s efficiency turning people into customers, but it says a lot less about your ability to create value.
Is Your Organization Conversion Rate Obsessed?
How about you? Does your organization value conversion rates above all else when it comes to website analytics? Would the logic in this post persuade them to think differently about the conversion rate metric? Keep in mind that this post covers just one example of conversion rates and revenues moving in opposite directions — there are numerous other reasons why your business could end up with this result. To learn more about the pitfalls of conversion-rate-driven marketing in Himanshu Sharma’s excellent book, Maths and Stats for Web Analytics and Conversion Optimization, chapter 11. ♦