Reallocate acquisition spend budget to CRO

by David Mannheim

posted on: December 29th 2015

As a concentration, conversion rate optimisation has been known to give, not just the quickest return on investment of any marketing activity, but also the largest.

Why do you think it is the core and sole focus at Amazon? The quickest company in internet history to reach the highest revenue of any company ever. In 5 years the revenue Amazon reached was $2.8bn, quite impressive to Google's (the second quickest company for reference) paltry $1.5bn. It isn't a secret that Jeff Bezos himself has advocated a culture of customer centricity and user experience. Amazon start with the customer and works backwards. In 2013, Amazon spent $6.5bn on optimisation and testing capacity, [Source] and they convert at about 18% [Source].

Does your business do that? (the focus on customer centricity, not the dizzying conversion rate!)

No doubt you might claim it does, but think about where your spend is allocated. I bet most of it is allocated towards acquiring customers, not converting them. As a result, are you a customer centric company? If you spend most of your budget on getting more and more and more traffic, are you just throwing your money towards your company without focusing on the user experience?

 

[blockquote color="#a5d2d0" bordercolor="#a5d2d0" author="Jess Bezos"]We see our customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.[/blockquote]

Although we believe investing in Conversion Rate Optimisation is a valid and persuasive argument, we understand that commercially budgets are set and persuading C-Level execs can be difficult. As a result, instead of 'creating new budget' for a 'new practice' have you thought about reallocating that budget?

An example of reallocating your budget

Take the example of an ecommerce website that sells widgets at an average order value of £250. They might spend £100,000 on acquisition to get 100,000 worth of monthly sessions with a natural conversion rate of 2%

But what happens if we shift the focus towards increasing conversion rate?

acquisition-spend

The spend and return is dependant on the market and the particular website commercials. There are a few ROI calculators available for you to use to determine what your potential ROI could be. We do this in any pitch or presentation to determine whether it's worthwhile for you, dependant on your traffic and profit margins.

Some caveats worthy of note:

  • AOV naturally increases with conversion because you're improving the user experience
  • The conversion increase represented is shown as an immediate increase. Remember that this increase won't dip (at least, not significantly). This conversion increase will (should) last for years to come so for 3 / 6 / 12 months of focused conversion increase you're looking at annual revenue increases of £1.2m using the example above

[blockquote color="#a5d2d0" bordercolor="#a5d2d0" author="Hayden Miyamoto, NoHatDigital"]CRO is the highest ROI activity you can engage in. It is the base of your success in online business[/blockquote]

Recommend reading How much should you be spending on Conversion Rate Optimisation? 

 

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David Mannheim

David is an experienced conversion optimiser and has worked across a series of core optimisation disciplines including web analytics, user experience and AB & MVT testing.

Reallocate acquisition spend budget to CRO

by David Mannheim Time to read: 2 min