Its common when talking to customers that the lines between traffic, conversions, and actual return on investment are blurred in their mind and we work to carefully decouple these pieces and explain each one in detail. So what are these pieces and why is each important?
Traffic — traffic is certainly an element of online success, but is traffic the only thing that’s important? Certainly not. Lets consider a site that sells automotive parts. If the site has 100,000 unique visitors a day but the traffic isn’t targeted its unlikely the site will be very successful even with that much traffic. Ie. if the visitor reaches the site because they were searching for computer parts its doubtful whether they will decide to pick up a new alternator for their Taurus on a whim. Carefully targeted traffic is much more valuable then untargeted traffic and will be reflected in conversion rates.
Conversion — While targeted traffic is a factor in conversion its not the only important thing. Once you pass this stumbling block there are a host of things that next become important. In short, for the highest conversion rates you want to tailor the page or pages that you deliver to visitors based on what they searched for and making sure you give them all of the information they need to proceed to your goal (either a checkout, contact form, or other action) in the least amount of pages. Every opportunity you give them to go elsewhere, even other pages in your own site, give the visitor an opportunity to do something other than reaching the goal. If a visitor can reach the goal by visiting one page, often called a landing page, then conversion rates will typically increase. If your visitors must visit multiple pages throughout the site conversion rates will fall, almost no matter how good the site is. The trick is to channel visitors to a goal and offer them as few opportunities to exit the channel as possible.
Return on Investment — At the end of the day, ROI encompasses the whole ball of wax. No matter what’s going on with traffic and conversions if you are spending more on advertising then you make in net income then your ROI is upside down. Its very easy for clients to lose sight of ROI when sales volume is up, but we’ve seen many businesses with multi-million dollar gross revenues (or even billion dollar revenues such as GM, Enron, etc) work all year without making a true profit. ROI is a simple concept and just needs to be calculated with fairly easily obtained business numbers. If conversions are accurately tracked to their originating source then calculating ROI for any particular marketing source or channel is easy. Lets take this basic example. Company sells widgets for $5 each. These widgets are drop-shipped and the cost of goods sold is $3. We can assume there is also another $1 in general and administrative costs required for each sale. So this leaves $1 in simplified potential net profit per sale. If we have a conversion rate of 5% then we can’t afford to spend any more than $5 per 100 visitors to break even. With this simplified example you can quickly see how easy it is to be upside-down with ROI if you don’t take the time to calculate it.
