Calculate the ROI of CRO
The objective of a conversion rate optimization (CRO) program is simple – get more value out of your existing audience.
For any business that invests resources in getting people to their website, this should be a critical piece of the strategy. Search engine marketing, social media marketing, email marketing, blogging, SEO, and many other promotional efforts are intended to drive people to the same destination hub – your website.
Because your website is the critical path for customer acquisition, a small increase in conversion rate has great scale, and therefore, great impact.
Unfortunately, I’ve noticed that when it comes time invest in CRO versus other marketing expenditures, like putting more money into PPC, we tend to lack an objective way to evaluate the decision. This lack of objectivity leads us to justify CRO without a clear or compelling KPI to back it up, and can lead to under-investment.
Let’s solve that problem.
In this post, I’m going to review how digital advertisers evaluate and justify their media budgets, show you a way to similarly calculate your return on CRO, and review some reasons why a CRO program may not always provide you with a positive return.
Ready? Let’s go.
ROAS, I LOVE YOU. ROAS, I HATE YOU.
To assess the value of advertising, marketing executives often look to a KPI called the Return on Ad Spend (ROAS). At LinkedIn, where I last worked, ROAS was the KPI that the Digital Advertising Team and the executives that approved their media budget, used to make decisions. They measured ROAS, reported, reviewed, scrutinized and used it to determine how much they would be willing to invest in advertising.
Through all of this, I began noticing that by calculating, forecasting, and reporting ROAS, the Digital Advertising team was often able to successfully argue for additional budget. Of course, sometimes the ROAS wasn’t in their favor, and as a result the budget could be reduced or paused.
The thing that impressed me was their ability to gain consensus and influence leaders to make investment decisions quickly. And making decisions is the key to driving action and making progress.
LET’S CALCULATE YOUR RETURN ON CRO
I think we need a similar KPI to help make decisions on CRO investments. Therefore, we’re going to calculate something I call the ROCRO – Return on Conversion Rate Optimization.
To calculate this, we’ll need the following six data points:
Average website sessions per day
Existing website conversion rate
Average order or lead value
Average contribution margin ratio
Estimated annual cost of CRO program
Estimated conversion rate lift from CRO
You may be surprised to see that small improvements in conversion rate can offset your entire investment and modest improvements can have a big impact.
REASONS FOR A NEGATIVE ROCRO
If you don’t get a positive ROCRO, then it may be for one or some of the following reasons:
1. You don’t have enough visitors
This is the most likely reason why your ROCRO is not positive.
The impact you gain from conversion rate improvements is very dependent on audience size. The more people are exposed to your improvements, the more impactful they become. If your audience is too small, then you need a huge conversion rate improvement for the benefit to outweigh the cost.
Contrary to what some “experts” say, you shouldn’t test everything. Some things aren’t’ worth testing – literally. There are some tactics you can do to mitigate low visitor volume, such as testing boldly and/or extending your test duration, but those work best when testing high value, low volume pages.
If your ROCRO is negative because of low visitor volume, then you may want to focus on attracting more visitors to your website – at least for now. Demand generation activities such as SEO, PPC or advertising on social media can pump up your visitor volume. Then, once those channels start bringing in the volume, it’d be silly not to optimize the website that serves as the destination hub.
2. Your conversion rate improvement goals are too conservative
It’s usually a good idea to keep your expectations in check. However, being too conservative can cause you to pass up on a great opportunity to improve your business.
While it’s true that on average, 1 out of 7 A/B tests produce a winning experience, all you need is one big winner to make it all worth it. If you keep at it and test solid insights, you will find new experiences that have a big conversion rate impact. And the more you leverage good research and experiment design, the more likely you are to be successful.
If you’ve never done any CRO, then it’s okay to have aggressive expectations because there are probably plenty of opportunities to improve. On the other hand, if you’ve already addressed all the obvious opportunities on your website, then you may want to be a little more conservative because you’ll need to put more effort into finding insights and generating creative ideas.
3. Your CRO costs are too high
Sometimes you’re just investing too much and the return doesn’t make sense.
One place to look is to re-evaluate how much you’re paying for your optimization platform. I’m a big fan of Adobe Target and Optimizely as they have incredible capabilities, but not everyone needs to spend on the most advanced platforms if it will stretch their budget and all they need are basic capabilities. If you fall into this category, checkout lower cost options such as Google Optimize, Visual Website Optimizer or an interesting platform that recently got on my radar called Reactful.
TEST. LEARN. GROW.
CRO should be a profit center and the return on your investment should always be positive. So, check out our ROCRO calculator, make some reasonable assumptions, enter your data points, and generate your estimated return.
Use it to guide your investment decisions and make your case. And more importantly, switch the estimates with actual results at the end of the year to measure your own success.