The 20:1 Ratio That’s Killing Your eCommerce Business
True story: When you effectively optimize conversion rates, you don’t have to spend as much money to acquire traffic.
In our 10 years of experience, we’ve learned that most eCommerce companies spend a 20:1 ratio between advertising (i.e., Adwords, Facebook, etc.) versus conversion optimization (AB Testing, UX Audit, Checkout Funnel, etc.).
This is a major lost revenue making opportunity.
While eCommerce companies continuously ramp up ad spending to attract more visitors, the lack of spend on conversion rate optimization prevents seeing exponential growth in profits.
This extreme 20:1 ratio is primarily because dialing up spending on ads is much faster than developing optimization. All that’s required to increase or add an ad spend is the click of a button.
To provide an example of how the 20:1 ratio plays out, companies that spend $50K/month on acquiring traffic with ads, only spend $2.5K on optimtization.
You’re Leaving Money On The Table
For a company that earns $250,000/month in revenue that has a 2.0% conversion rate, optimizing conversion rates by just 0.1% (to 2.1%) overall would provide an additional $150,000 in incremental annual revenue.
Guess what can happen when the ad/optimization ratio switches closer to a more appropriate 10:1? This can lead to conversion rates increasing from 2.0% to 2.2% to 2.4%. The alone will annually drive $300 to $600K in additional sales.
That’s your entire ad budget returned.
Long story short: Increasing conversion rates helps you get more money from your paid traffic.
When you strike the right balance and investment between your ad spend and conversion rate spend, magic can happen for your business.