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Is optimization even worth it?

This post was originally sent out as an email to my now-defunct mailing list. You can read all such posts here, if you like.

Before you let a slick CRO ninja sell you on optimization, or before you sink another precious hour of your own time into it, what’s the potential upside? Let’s take a few minutes to figure it out.

1. What’s a conversion?

You’re probably measuring free trial signups, or leads passed to the sales team. Whatever it is, be clear about how you define it (and make sure you’re tracking it accurately).

2. What’s your website conversion rate?

You can measure this by visitor (“3.7% of visitors sign up for a trial”) or by time period (“We get ~250 signups per month”). Make a note of each.

3. What’s a conversion worth?

To get here, you have to work backwards. What’s a customer worth?

If you know your average Customer Lifetime Value (CLV), start with that. If not, estimate it like so:

CLV = (Average monthly revenue per customer) x (Average # of months a customer sticks around)

Now that you know what a customer’s worth, you can calculate the value of a signup, or lead, or whatever you’re measuring on the website. Let’s say it’s leads:

Conversion value = CLV x (Average % of leads who become customers)

4. How much would a 5% increase in conversions per month bring?

Suppose your spend 6 months on optimization, and see a 5% increase in your conversion rate. What does that mean for the business?

Number of additional conversions = (Conversions per month) x 5%

Value of additional conversions = (Number of additional conversions) x (Conversion value)

If you followed along, you’ve got a dollar amount in front of you. How does looking at that amount make you feel?

Excited! Wow, this would be huge! Time to call up that slick CRO ninja and take out your checkbook.

Underwhelmed. Try assuming a bigger increase. 10% instead of 5%. Or 50%, or 100%. How much of an increase does it take to make things exciting?

Depending on where you’re starting, how well you execute, and your luck, seeing 50% improvement might be completely realistic. But targeting a 50% increase is way different from trying for 5%. Just make sure that CRO ninja has a plan to get you there.

Which brings us to the missing piece of this puzzle - what’s an “average” conversion rate? How do you know if expecting a 50% lift is reasonable, or crazy town? I’ll have some help for that on Friday.

In the meantime, if you’re interested in going a little deeper on these calculations, check out this post.

    © 2024 Brian David Hall