Why Conversion Rates Tied to Traffic Acquisition Rarely Exceeds 3%

Nov 12, 2013 5:03 PM  By

Obtaining website traffic is a top priority for most merchants because ecommerce sites of all sizes need to gain traffic first before achieving sales.

To do this, most merchants invest in lead-generation services like Google AdWords, in addition to a variety of other tactics to drive the acquisition and engagement of shoppers. The result for many merchants is around a two percent conversion rate overall with highly successful merchants achieving three percent.

Conversion leads to more revenue, but can we really say that converting just three out of every one hundred shoppers to make a purchase is a success?

Marketing’s paid search, or acquisition budget, is around 40% of total web marketing spend for companies of all sizes, according to Forrester Research. Spend is typically managed as a percentage of overall site revenue, so when revenue goes up, acquisition and search budget does, too.

With such a strong relationship between paid search spend and healthier bottom lines, it’s natural to assume that any extra profit should get plowed back into traffic acquisition, but this is a mistake.

What many organizations don’t realize is that the conversion rate tied to traffic acquisition will rarely exceed three percent, regardless of how much money is spent; in some cases, conversation rates will even drop.

Why?  Because the law of diminishing returns takes effect: As merchants pump more money into traffic acquisition, the quality of that traffic declines. What once bought 10 quality site visits, now buys five. Thus, the conversion rate on the next set of leads is lower, leading to a drop in overall conversion rate.

Let’s examine what marketers can do to correct this common mistake, spend marketing budget more efficiently and see revenues grow:

Think carefully before you buy more traffic
It’s a tough choice, but resist the urge to pour the additional revenue back into Google AdWords. Take the additional budget and invest it in things that appeal to your current customer base like personalization, offers and email campaigns, all of which will drive repeat engagement. You will still generate traffic that will convert to purchases with the original acquisition investment staying the same, but you will avoid paying more money for less qualified leads. The sooner you realize your acquisition strategy is buying lower quality leads, the sooner you can focus your energy (and budget) on other areas of your marketing program that will drive better engagement, conversion and revenue.

Focus on engagement
It’s no secret that a more personalized shopping experience will lead to better conversion rates and higher average order value (AOV). Improve your organization’s personalization capabilities throughout the customer journey. Merchants experienced a 129% lift in year-over-year sales from smartphones and a 178% lift from tablets according to Forrester’s State of Retailing Online 2013 Report. So expand your initial interaction and personalized experiences past your product pages, including other post-sale engagement opportunities like order and shipping confirmations, and email and mobile recommendations.

Today, customers demand a customized experience from every interaction with your brand, so build personalization into your strategy throughout your site. In addition, consider personalizing both product and content for your shoppers. Improving product detail pages with multimedia content like videos, serves to engage shoppers with more information and provides an increased level of service to them when not in purchase mode.

Improve AOV
Customers come back and make a repeat purchase when they are engaged and satisfied with your brand. Offering a personalized customer experience is important in order to increase AOV. While site conversion may remain the same, use personalization on the checkout and cart pages to drive AOV. By presenting complimentary or accessory products to customer at this stage in the shopping process will increase the total purchase. Consumers are receptive to these types of recommendations which increase both the number of items purchased as well as order value.

Invest in promotions
Everyone loves a good deal, so why not allocate budget for seasonal campaigns and promotions? Dedicate more resources to developing creative campaigns to drive your customers back to the site with the upcoming holiday season. Provide shoppers with discounts around big events like Black Friday or Cyber Monday. Customers look forward to these big retail events, and they will drive traffic from existing customers back to your site. Free shipping is one of the most popular offers that a merchants can make and can often be the last push that a consumer needs to complete the purchase. Also, be sure that your offers are mobile enabled as Forrester found that 40% of all emails are now opened on mobile devices.

Once you reach that elusive three percent conversion rate, don’t throw good money after bad. Dedicate your hard earned additional revenue to activities that improve the customer experience and accelerate engagement and re-engagement. The result will be higher revenue, lower cost, improved site performance and a happy customer who is likely to shop with you again and again.

Dan Darnell is vice president of marketing and product at Baynote.

  • Guy W Lecky-Thompson

    A few things… firstly, I would not categorize AdWords as ‘lead generation’ which is a sophisticated multi-billion dollar global industry. AdWords is an only slightly more sophisticated form of banner advertising in my opinion. Not to say it doesn’t work, because it does, but it’s pure advertising, whereas lead generation rests on conversion as its main goal/measure of success, whereas AdWords is just about volume.

    Having said that…

    Kenshoo’s Aaron Goldman recently said that ““Our study shows that visitors arriving from paid search are more profitable than those arriving from organic search, even when you take into account traffic acquisition costs.” – http://bit.ly/18rbjCU (Website Magazine, whom I’m nothing to do with!)

    So, I wonder about the 3% figure, and would love to get the Forrester guys Kenshoo guys in the same room to discuss paid vs. organic search!

    The best way to get the most out of your paid search spend is to figure out which keywords have the best conversion (i.e. over that magic 3% figure quoted) and spend smartly. What both Website Magazine and MCM have in common is their conclusion that it’s not just about volume…