Online marketing is dominated by anecdotes. This worked in my last job, so let’s do it. Or I read about this technique on LinkedIn from someone I admire.
There’s nothing necessarily wrong with this; in online marketing and especially consumer marketing, testing, learning, and failing fast is essential. However, for any marketing initiative it’s important to understand context – what needle, specifically, is this initiative trying to move? Conversion Rate is the obvious one, but can be misleading. Not all conversions are “good” and, in fact, you can often improve marketing performance with a reduction in conversion rate. Let’s try to break down consumer conversion to understand what is going on; I’ll be focusing on website conversion for now, not apps. Here are some core concepts:
- Site Traffic: visitors coming to your website and being exposed to your attempts to convert them into a customer
- Conversion Rate: of all unique site visitors, the percentage that turn into paying customers.
- Lifetime Value (LTV): your expected total revenue from a customer; easy to calculate for one-time purchases, but more nuanced for SaaS.
- Channel: how the customer originally came to your site, e.g. direct, paid or organic search, referral, etc.
- Pay-Per-Click (PPC) Cost: paid marketing where you pay for each click on your ads.
- Cost-Per-Action (CPA) Cost: paid marketing where you typically pay only for converted customers; common with affiliate marketing.
- Cost to Acquire a Customer (CAC): often thought of as only paid marketing costs (e.g. Google, Facebook, affiliates), but there is more…
- Cost to Onboard a Customer (COB): this cost is usually in employee time, often hidden in the Customer Success or Integration departments.
- Sales Costs: if you have a sales team, their salaries and commissions are indirectly part of your CAC.
And now let’s introduce our final concept, the highest level and most strategic metric for your business.
- Total Sales, Marketing, and Onboarding ROI: the sum of LTV relative to total sales and marketing costs, plus COB.
We want to maximize total LTV while minimizing total marketing costs, and to the extent possible also sales and onboarding costs.
Now that we have some definitions to work with, let’s dive into some tactical conversion concepts and think about how they are related.
This is a technique for “filtering” site traffic before or immediately after it reaches your site, to encourage conversions only for visitors that actually want your product and are therefore most likely to buy. If you incur significant marketing or onboarding costs before the customer actually commits to paying you, qualification is useful as a way to limit these “tire kickers”. Using CAPTCHA to ensure your visitors are human is an obvious one. Displaying up-front fees is also an effective way to qualify site traffic. The tactical approach to this depends on the channel.
- For CPC channels like paid search, you can add “starting at $100/mo” to the search listing itself. Prospects that that would never pay this much will never click, so no CPC cost is incurred, and your conversion rate increases, because unqualifieds never enter your funnel.
- For affiliate marketing channels based on CPA, disclose pricing on your landing page. This will lower conversion rate but also your costs for sales, marketing, and onboarding.
- Do more qualification for products with high onboarding cost and/or risk of onboarding failure.
Hurdles are artificial barriers to conversion that filter unqualified traffic by requiring some determination and legitimacy on the part of the customer. Hurdles can be a means to qualify customers. For example, requiring the user to provide and verify their work email address makes it much more likely that the customer is legitimate and serious about wanting the product. Hurdles reduce conversion rate due to higher abandons, but can also reduce marketing costs. The tradeoff is in how many legitimate customers abandon due to problems in the process. For example, requiring that prospects scan and email their ID is a significant hurdle likely to cause abandonment.
- Use hurdles in high cost CPA channels where it makes sense to aggressively filter out the least likely to convert to avoiding the marketing cost.
- Avoid artificial hurdles in PPC channels, because the traffic is already paid for.
Enticement is the use of an offer or some sort of reward to increase conversion, e.g. a free iPad or free credit report. While this can increase conversion, the problem is that customers may be more interested in the enticement than your actual product. They may not completely convert to a paying customer, so when used in conjunction with paid marketing, enticement will grow your top of funnel and associated marketing costs but bring lower quality customers. Enticement is essentially the opposite of qualification, so it’s important to balance the two and in analyzing marketing channel performance, treat any channel with traffic exposed to enticement as its own separate channel.
- Remember to add the cost of your enticement to CAC for the relevant channel, even a product discount is a cost.
- Try to use an enticement that is somehow relevant to your product – even the least qualified visitor will fill out a form for a free iPad.
- The best channel for enticements is organic search: the traffic is essentially free, and the visitor is already somewhat qualified through the act of searching so using enticements on a landing page can drive impulse.
Facilitation is optimization of the conversion process by removing barriers to conversion. For example, removing unnecessary data collection, limiting the number of signup steps required, and addressing common error cases are all good optimizations. These can be additive too, for example requiring SSL and showing a privacy disclosure to reduce data security fears as a possible abandonment reason. Facilitation is a no-brainer in terms of marketing economics, because it increases both conversion rate and total conversions. On the downside, you may be missing out of data that you really need. For example, if you need Social Security Number for compliance reasons, you have to collect it at some point, but it is better to push that collection step down the conversion funnel rather than try to collect up front. In general, for everything you ask of your visitor, think carefully about how much you really need it at that point. Do you really need their phone number? Only if you absolutely need to call the prospect to convert them, otherwise you can push it down to the onboarding phase. And instead of asking for address information, use geo-location tools that can detect this automatically behind the scenes. Finally, always try to prioritize email address over other data points. Email address is strategic in that once you have it, you can reach the prospect with lifecycle marketing even if they don’t complete the process, days, weeks, or perhaps even months later.
- Conversion should be “frustration free” regardless of channel.
- Always streamline your conversion process as much as possible to avoid giving the prospect reasons to abandon.
- Don’t require a complex password unless the information it secures is actually sensitive.
- Provide a suggested username if not available, or let them use the email address you have already collected.
Verification ensures that customer provided information is accurate and so minimizes problems during the acquisition process. Strong verification reduces the number of data input errors that result in invalid conversions, thereby reducing marketing expense and COB. The trade-off is in how much the verification acts as an unnecessary hurdle, which could affect legitimate conversions. An example of effective verification is real-time email address deliverability validation, as opposed to requiring an email receipt and click. Verification also acts as a form of qualification, filtering out bogus customers who deliberately enter fake information.
- Behind-the-scenes verification should be “always on” regardless of channel.
- Push complicated verification steps down funnel to onboarding if possible, unless they are critically important to qualification.
- Add verification costs to your CAC.
Analyzing and Optimizing – The Importance of Channel
The success of your overall marketing effort distills down to your Total Sales, Marketing, and Onboarding ROI, but it’s impossible to analyze and optimize against that metric alone. There is no one size fits all approach to conversion analysis and optimization, it’s important to view each acquisition channel as its own entity with its own metrics, and potentially sub-channels thereof. Conversion rates and CAC vary by channel, and different optimization techniques are appropriate depending on their cost and how that cost is incurred. Your per customer COB will generally not be affected by channel, but customer quality is. Low quality conversions can result in failed onboarding and zero return on that COB, you should explicitly track failed onboarding (and early cancellations or product returns) to ensure it is accounted for in the applicable channel.