Thursday, August 27, 2020

Lesson #330: The Importance of Conversion Rate Optimization

Posted By: George Deeb - 8/27/2020

Getting new customers to your website is hard enough, having to block and tackle up against all your competitors' advertising on Goo...

Getting new customers to your website is hard enough, having to block and tackle up against all your competitors' advertising on Google, Facebook and elsewhere.  But, that is only half of the challenge.  The other half--the more important half--is getting those site visitors to convert into a lead or a sale.  And, that process of maximizing conversions is known as Conversion Rate Optimization, or CRO for short.  This post will help educate you on what CRO is, how to do it and why this matters to your bottom line . . . big time!!

What is CRO?

At the simplest level, CRO is optimizing the ratio of conversions, however you want to define them (e.g., transactions on your website, email lead form submissions, phone calls) as a percentage of the total visitors going to your website.  So, as an example, an average ecommerce website may have a conversion rate of 3%, when looking at the ratio of online transactions to website visitors.  But, there are wide ranges in conversion rates; a brand new startup with no brand recognition may only convert 1% and a huge trusted ecommerce portal like Amazon may convert 8%.  Said another way, there is an 8x difference in revenues to be had, whether you are at the low end of the range, or the high end of the range.  So, CRO is a critical part of maximizing your revenues, and needs more focus than most startups give it.

How is CRO Optimized?

First, you are optimizing for every variation of your user experience across devices.  There is not a one size fits all solution.  Optimizing for desktops, tablets and mobile devices are completely different.  And, more often than not, in today's world, mobile is the most important experience that needs to be optimized, given it represents the majority of inbound traffic for most companies these days (although many designers are still overly focused on desktop design).

Second, you are optimizing your user experience (UX).  That includes things like your site's usability, navigation, page design, process design, email form design and overall site speed (and speed really matters for Google to get higher up their search results).  This is changing things like page headlines, copy, voice, creatives, offers, calls to action, colors, sizes, messaging, etc., constantly A/B testing different variations of each, to see which one helps drive conversions the most.

As you study users playing with your website, you are going to learn where the drop-off points are in the conversion funnel.  How many site visitors, lead to product searches, lead to shopping cart additions, lead to starting the checkout process, lead to a completed sale.  Every step of that process needs to be optimized, from beginning to end.

Third, another part of CRO is seeing how your marketing efforts impact conversions.  Do any marketing channels work better or worse?  Any variations by customer demographics?  Do variations in landing pages from the ads, have an impact on conversion rates?  Do certain products convert better than others?  So, this is not only about optimizing the UX of your site, it is working in partnership with the marketing department to optimize what they are doing, to help maximize conversions.

How is CRO Measured?

There are many ways to study your UX, to learn how consumers are engaging with your site.  You can survey customers to learn what they like and don't like about your UX.  You can A/B test different variations of your page design, to see which version performed better.  You can study your Google Analytics data, and they have ecommerce funnel optimization tools, to learn where the drop-offs are happening.  There are many technologies that can help you learn here--things like heat mapping where a user's eyes are focused on the page, recording user web sessions, doing scroll bar mapping or using other software that can help you study your customer journey on your website (e.g., Content Square, Crazy Egg, Hello Bar).

Who Can Help Me With CRO?

And, if you don't have an internal UX team or enough time to do this yourself, there are many agencies that can help you audit your CRO and make specific optimization suggestions for as little as $5,000.  There are dozens of agencies that can help you here, but I know agencies like The Good, Mirgo Digital, Underwater Pistol, Thrive Digital, 1 Digital Agency and Boostability have expertise as CRO focused agencies.

Closing Thoughts?

Too often an entrepreneur is focused on getting a minimum viable product into the market as quickly and cheaply as possible, which is the norm for most lean startup launches.  But, your website experience is a key part of maximizing revenues, and it needs professional attention, sooner than later. 

Imagine you were shopping in a retail mall, and you walked by a store where the front door was half closed, the light bulbs were off and you couldn't walk through the aisles of the store without bumping into the racks of merchandise or other shoppers.  You would simply leave and move on to the next store that gave you a better experience.  It is that same logic online, with the hundreds of competitors trying get those same customers to visit their websites. 

So, with a little bit of effort here, you can materially increases your revenues and profits by expanding your conversion rates--the only metric that really matters at the end of the day.

For future posts, please follow me on Twitter at: @georgedeeb.

Monday, August 10, 2020

Lesson #329: Leverage Market Downturns as Investment Opportunities

Posted By: George Deeb - 8/10/2020

Chaos followed for most businesses in the wake of the Coronavirus:  the stock markets crashed, product demand fell and unexpected losses...

Chaos followed for most businesses in the wake of the Coronavirus:  the stock markets crashed, product demand fell and unexpected losses started to build up.  Most businesses did everything they could to batten down the hatches to help them best weather the storm, including stopping all discretionary investments.  But, should they have?  Most great investors, like Warren Buffett, have been quoted as saying their highest return investments were made during the middle of economic downturns.  So, theoretically, your highest return investments could be made right now, during the peak of the negative economic impact coming out of COVID-19.  So, instead of retreating right now, you may be best served long term by accelerating your long term investment efforts, if you have the capital to do so.  Allow me to explain.

Your Vendors Are Typically More Flexible During Downturns

You are not the only one whose business may be suffering from lower demand right now; most businesses are suffering from lower demand during downturns.  Which means they too are struggling to generate revenues.  And, when that happens, that is when they start to discount their prices, to try and drum up more demand and revenues.  So, if you were normally going to spend $1MM on things for your business, you could now be able to buy those exact same items for $800,000, as an example.  That is like adding $200,000 to your bottom line!!

There is Typically an Over-Supply of Good Talent During Downturns

In the last couple months, over 40 million people have lost their jobs in the wake of Coronavirus.  Most of them are really talented people that just happened to be in the wrong place at the wrong time.  Which is great for you!  These people are now looking for new jobs, and there is an undersupply of job openings.  Which means a couple things for you: (i) you should have the “pick of the litter” of resumes to choose from; and (ii) those candidates may be able to work for lower salaries than they would normally have worked, because they need a job.  So, your chance to “land the whale” in terms of great people at a great price will never be better than right now.

There is Typically Less Competition During Downturns

Many undercapitalized companies will not be able to survive an economic downturn.  Which means, instead of competing against 10 major competitors, you may only now be competing against 7 major competitors.  That 30% of revenues is now up for grabs, between you and your other surviving businesses.  If you get an equal share of that, your revenues will rise 30%.  If you aggressively market your business to taken an even bigger share of that, you could position your business to quadruple your revenues, taking the accounts of four companies instead of your one company.

Advertising Costs are Typically More Affordable During Downturns

The combination of companies going out of business and companies cutting their marketing efforts during downturns means, you should be able to see materially better returns on your marketing spend during downturns.  I know that is true for my Restaurant Furniture Plus portfolio company; that business has seen its cost of acquiring a new customer cut in half in the wake of Coronavirus.  Which means on the same marketing spend, I should be able to convert twice as many customers!

M&A Targets Are Typically More Affordable During Downturns

The same “bargains” can be had in the mergers and acquisitions world, so this would be a great time to try and roll-up a bunch of your competitors at lower than normal valuations.  As an example, let’s say a business that used to be generating $2MM of cash flow would have been valued at 6x cash flow for $12,000,000.  But, today, they are only doing $1MM of cash flow, and that business may only be worth 4x cash flow, or $4,000,000.  That is like buying a business at a 67% discount, when you know the demand and profits should return to historical levels as soon as the market conditions recover.  So, now could be the best time to try and find businesses to acquire to scale your business long term, at low valuations today.

Concluding Thoughts

As you can see, there are a lot of potential reasons you should be accelerating your business investment efforts right now, not reducing them.  Hopefully, you have some capital set aside to make these investments a reality.  But, if you don’t, this could be a good time to raise some capital, with a clear pitch to your investors that this is the perfect time to be “buying low” and “selling high” at a later time down the road, after the markets improve.  A smart investor should understand this concept of turning “lemons” handed to you by the market conditions into “lemonade”!!

For future posts, please follow me on Twitter at: @georgedeeb.

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