Intro: Topic of focusing on conversion rate to improve return on ad spend and simplify scaling.
One of the biggest challenges with being a performance marketing agency (we specialize in creative and paid traffic), is that it’s one piece of the equation of achieving true sustainable growth.
There are many many things to focus on as a brand owner, but focusing on the revenue and financial health of the company we simplify it to two 2 main pillars.
- Acquisition – how many new customers you bring into the business and for how much
- Retention – how many of these customers come back and buy again and again.
We focus primarily on #1, which has by far the most associated costs for the brand. The point of acquisition is to acquire new customers and improve their life so that they buy again from you in the future.
The thing is… in order to retain customers you need to acquire them in the first place and that’s the point of this article… CUSTOMER ACQUISITION! (Wooo).
Now not everyone has a business that naturally supports a high % of repeat buyers (example: one product, non consumable businesses. If this is you, don’t worry, there’s still things we can do. The obvious recommendation is to launch different products to sell, which obviously comes with a cost.
Regardless, every business owner should be adamant on lowering the cost of acquiring a new customer, increasing the conversion rate, and increasing profitability… let’s jump in!
There’s a few common problems we see when jumping on the phone with eCommerce brands and talking strategy. Here are a few of them:
The first, is that when focusing on lowering the cost of acquisition, brands and advertisers tend to hyper focus on the traffic lever (things you can control from within the ad account) like:
- Ad account structure
- media buying strategies
- Audiences
- ad copy
These things are all extremely important; it’s the bulk of what we do, but it’s not the full picture… There’s an entirely different side of the equation which is the conversion rate. People know conversion rate is important but a lot of people treat it like it’s just the “way it is”.
Secondly, people try to improve conversion rate with things that don’t actually move the needle. Or third, they’ll focus on things that make the least impact first, then move to the more impactful things when those don’t work.
Let’s look at what convinces people to act…
If you haven’t read Robert Cialdini’s book on principles of persuasion… you should. But to summarize he says there are 6 main principles which persuade people to do things.
They are:
- Reciprocity
- Scarcity
- Authority
- Commitment
- Consistency
- Consensus (Social Proof)
Marketing is almost entirely psychology. So if you want to sell more products, you need to tap into it.
The thing with focusing on your ad account structure, ad copy and creative is that on social media, you have an extremely brief period to peak someone’s interest. If you’re successful with your advertising, you’ll do just that and drive a lot of traffic to your landing page/ website.
Great, you paid money for nothing in return (yet), except for the ability to retarget someone.
The goal of advertising, especially direct response advertising is to grow your business, get paying customers and deliver your product to them and improve their life (hopefully) lol.
Now let’s talk about the offer briefly…
In my opinion, the reason people really struggle to scale paid traffic is because they think tinkering around with advertising is going to eventually be a significant needle mover. But the fact is.. If you’re struggling to get traction or scale past a certain threshold, it’s likely an offer issue.
Let’s look at the revenue equation:
Traffic X CVR X AOV = Revenue
We can break it down further and talk about the cost of traffic but even then, we’re talking about 33% of the equation. Yet it gets the majority of the focus in groups, youtube videos, gurus etc. Why?
I think it’s because it’s the easiest service to offer people (media buying).
So by convincing people that they (they being agencies, gurus etc.) they’ll convince people to work with them or buy their course.
I also think this is one of the reasons that agencies get such a bad rap… not because they suck at what they do but because what they do isn’t actually the biggest thing holding you back from scaling, it’s actually a poor conversion rate, low average order value, low lifetime value, you get the point.
The thing you need to realize is that by increasing your conversion rate, you’re increasing your return on ad spend without touching a thing.
If you can increase the average order value, while increasing the conversion rate, imagine what that’s going to do to your return on ad spend and profitability…
This isn’t even bringing LTV or repeat purchases into the equation, which is also a MASSIVE part of the business (a discussion for another day lol).
One of our clients has an incredibly strong offer, it’s a subscription business with 250k monthly subscribers paying between $6-$15 per month depending on their package. Let’s average that out to $10 per sub. And that’s a 2.5 million dollar per month business.
Zuckerburg could put his CPMs to $500 or ban him tonight and he will still make 2.5 million dollars next month… and the next, and the next.
The point is that if you want to control your business and your success, you need to be focusing on improving things that you have full control over.
Traffic opportunities will always be there, look at what tiktok has done. For anyone with a dialed in conversion rate and large aov, it doesn’t even matter if “your demo is on tiktok”. Every age demographic is on every platform. It’s about beating your competition and that’s not done through targeting.
There will be new opportunities coming out in the future, even better than the current ones. Traffic isn’t the problem. People with strong offers and good unit economics are absolutely crushing it on Facebook right now despite ios 14 issues, high costs, competition, etc.
I’m not saying don’t focus on improving creative or testing different audiences and ad structures, these things are EXTREMELY important, it’s the focus of what we do.
What I’m saying is that these things are fuel to add to the fire and focusing on these things without looking at your business or offer are like trying to pour gas on a lit match. It could explode.. Or it could kill it entirely and tank.
If you’re selling an incredibly unique product or VERY good at marketing you could have a lot of success, but the truth is, most of us are average marketers. So focus on giving yourself the best possible chance of succeeding by focusing on increasing the foundations.
So… we should talk about some tactics here as well. What are some things you can do?
First let’s talk about increasing conversion rate. This will almost entirely come down to value. There’s other factors that should be used to leverage those 6 principles of persuasion as well, but we’ll cover those in a minute. Let’s chat about values and offers for a sec.
One misconception is that price is the biggest factor. Your conversion rate is broken? You must lower the price. Sometimes, this is the case, but generally speaking, it’s a value problem, not a price problem. The issue is that for what you’re asking, people don’t think it’s worth paying what you’re giving them in return.
Another thing I want to throw in here is that there’s the value of what you’re asking for… and then there’s the perceived value. I was watching a presentation by Rory Sutherland (Ogilvy UK Chairman – confirm this) and he said:
“there’s the thing… and then there’s the perception of the thing. And very rarely are they the same thing. And all that matters is the perception of the thing”.
People often associate value with price, but they aren’t the same thing. So what happens is you have all these competitors in a race to the bottom for price, but sometimes raising your prices can make what you’re selling seem more valuable.
“If it’s so much more expensive it MUST be better”.
One thing I want to add in here is that if you’re competing on price, you better be prepared to be the cheapest, otherwise, on that value proposition alone, you’re going to lose in the long run.
The second thing I want to say is if you’re not going to be the cheapest (or the first in your category), don’t try to compete solely on price. You need to position yourself as better, and when you do this you can charge more, because better is worth more and more expensive, will also be perceived as better.
Now let’s look at how value is derived. I actually got this from Alex Hermozi, who’s an incredible marketer. He says the perceived value is derived from promise/dream outcome, multiplied by the perceived likelihood of achievement, divided by the time delay, multiplied by the effort/sacrifice.
So to increase the value (or perceived value) you can either increase the dream outcome or the perceived likelihood of results…. OR you can decrease the time delay or the sacrifice.
The bottom half of the equation would be time delay in how long it takes to get the desired outcome and the effort/sacrifice (in eCommerce) is a combination of cost and convenience. Because well, people value their time as much as (or more than) money.
So basically, to increase the perceived value you can provide a better product/result or provide more, or you can decrease the sacrifice people need to make both in time and money.
Now, let’s talk about how to make a better offer….
There’s the obvious which is offering what you’re selling at a discount, or running regular promotions. We encourage this because every now then you need to push revenue to hit goals and certain time of the year people expect deals.
Another obvious (but harder) thing is to innovate and make a better product. Offer something that your competitors can’t. The thing with this is people will always be on your heels so its an incredibly time consuming and exhausting thing but if you can lead your market in innovation, people will pay… Just look at Apple.
There are a few other ways you can do this as well, without running discounts. Some brands are strongly against running promotions, and that’s fine if this is you because there are other ways to package an offer.
Here are a few:
- Bundle products or add free product bonus onto your offer – The important thing here is obviously to look at your unit economics and really know your cogs and numbers.
- Add digital products to your offer – This is especially effective if the products you sell solve a specific problem for your customers. If they’re looking to solve that problem, chances are good that if you can provide really good information to them that further solves the problem, they’d be interested in that. Now you can leverage this to either increase the average order value, or the conversion rate – sometimes both. Some examples of this would be an ebook, video training series.
You can package it in for free, or you can charge for it if it’s actually valuable information. Caveat… you should make it valuable if you’re going to do this – don’t waste your customers time.
It also helps if the information is coming from an authority in your space, so partnering with an expert is a good idea.
- Provide customers access to consulting, coaching or information from an expert – The benefits of this are twofold, you can start to build a community and you can also provide a ton of value to your customers by having an expert answer their questions. You get another channel of marketing which is free, but the focus of this MUST be providing your customers with value.
Plus, it’s relatively low cost of fulfillment for you, and generally of high value to a customer to have access to an expert at their fingertips
- Another thing you can do is partner with another brand, service or company to give customers a discounted price on their product/service or bundle it in with your offer.
These are a few, but there are other things you can do as well to increase the effectiveness of your offer. The nice thing about many of these are that they’re relatively low cost of fulfillment, or fixed costs. Also, going back to the six principles of persuasion, scarcity and fear of missing out on a good offer will encourage people to act right now.
And you can do this without the corny overused countdown timers on your product that are overused. Can structure the urgency or scarcity around all of the bonuses that you’re including into the offer which make a lot more logical sense, because there is real tangible value to your customers with these things.
One of the biggest things that will crush a conversion rate is the lack of leveraging scarcity or urgency on your offer.
One objection to this is that people don’t want to come off as a discount brand that’s always running promotions. Another one is brands that have a retail presence can have contracts or restrictions with running promotions or discounts.
That being said, you can easily build out custom landing pages that are hidden from the website where you exclude past purchasers from your targeting and use it to drive new customers into your customer company.
The easiest customer to sell is one who’s already had an experience with yourbrand, but again, that’s a conversation for another day.
One major thing to note is that offer creation is not a set and forget thing. Just like with everything else, offers get old and lose their appeal over time. Plus if you’re building in urgency or scarcity into the offer either with available quantity or time based, you should actually stick to that before creating a new offer or refreshing the existing offer.
It’s not a short term growth hack, the point is to build a serious long lasting business with a loyal fan base. The quickest way to lose loyalty is to lie to your customers. It’s not about tricking customers, the point is to serve your customers.
It takes a ton of creativity, work, and associated costs with always coming up with new acquisition offers, but it will pay off more than any other investment once you dial in an offer that is a break-out offer.
You can literally touch nothing on the traffic side and you can get an increase in ROAS overnight. But not many people, especially the smaller, newer brands put enough focus on this.
Cool, so we talked about the offer. Next thing I want to talk about other things that should be incorporated into your landing page, now clearly I’m a big proponent of the offer, but there’s a lot more to a good landing page than just an offer.
More important than what’s going to cause people to buy is what’s going to cause people to not buy. The biggest reason people don’t buy is because of a lack of trust.
It doesn’t matter how good your offer is, if people don’t have trust in you as a brand or that what you’re saying is true, they aren’t going to buy from you. So how do we increase trust? Well there’s a few ways you can do this:
First and foremost, social proof is one of the strongest possible ways to build trust. People don’t trust companies nearly as much as they trust other people. It’s why word of mouth is the strongest type of marketing you can have long term, because no one is going to lie to their friends and family.
Testimonials and reviews are crucial, if you can incorporate video reviews from your customers it’s going to be even more effective.
That being said, you should do everything in your power to show the conviction you have in your own products. Here are a few ways:
- Put yourself out there as the founder, have a video on the landing page thanking people for showing interest in your product, explain the backstory, try to give them a chance to get to know you.
- Offer guarantees in your product, free return shipping if possible
- Compare yourself to your competitors and explain why you’re better.
- Be bold.
The second way to build trust is through authority – a lot of products incorporate some sort of science by nature of the product. Back up the science behind your product, a (especially if it comes from a reputable source) it’s going to increase the trust behind your claims.
Lastly, having an identity is another big one. You shouldn’t be talking to everybody with the copy on your landing page, you should be talking to your ideal customer. It sounds like common sense but if you can really tap into associating with someone’s identity, and how they view themselves and the world, they’re going resonate with you, almost on a personal level.
All these things I’m talking about are complex topics and we could go a lot deeper on all of them. The biggest thing I want to drive home is that trying to fix your revenue or profitability problems with traffic side adjustments alone is an uphill battle that you’re going to lose.
Traffic costs aren’t going to be getting cheaper on the CPM side of things. You need to remember that your ads don’t sell the product.. They sell the click.
At the end of the day your job is to serve the market and figure out what they want. Trying to force your offer onto an unreceptive market is a tough game to play.
Fix your conversion rate and then focus on the cost of traffic. It’s going to be a lot easier.
Thanks for reading this, it was fun to write. There’s going to be a lot more of these coming out so subscribe to our newsletter and we’ll send them right to your inbox.
Take it easy…
– Ryan