Determine your own feedback loop to discover what is the most you should pay for advertising, or determining the value of a visit to your ecommerce website. The process of moving visitors through your ecommerce website, from landing page to purchasing is a sales funnel. Here I show you how to find out what a visit to each step through the sales funnel is valued at. There are two major elements in play, 1.) knowing your conversion rates between the steps your visitors take and 2.) knowing your average order value, or profit per order. Once you know those then you can work backwards to determine the value of a visit to each step is worth.
Meet Sports Shop Seán. Seán owns an online shop that sells sports equipment. He running a back to school advertising campaign for kids sports gear. He knows his average profit per order is around €10. He's wondering how much is too much to spend on a Facebook or Adwords advertisement driving visits to his shop.
When someone visits an online shop from a direct campaign like this, the landing pages are usually individual product pages (one product displayed) or category pages (many products displayed). Progress through the funnel to the sale then typically follows this pattern:
- Land on product page
- Add product to cart and visit cart page
- Complete details on checkout page
- Complete order and see thank you page
The conversion rates of interest here are the ratios of visitors that typically move between each step. If 100 people click our advert and land on the product page, and only 50 of those add something to the cart, then our conversion rate for that step is 50%. When we have been tracking these steps for a good amount of time we can posit that if we get 100 visitors to look at a single product page, then 50 of them will continue to the cart stage. My previous blog post Google Analytics Goal Tracking will explain how you set up your ecommerce website tracking to determine the conversion rates. For now let's continue with the example.
Thank you page
50 visits (50 leave)
40 visits (10 leave)
35 visits (5 leave)
N/a without a previous step
conversion rate x average profit per order = value of visit to top of funnel
0.35 x €10 = €3.50
Once you know that upper limit of €3.50, you want to play with your ads to get the cost per click for the target page (product page) as far below €3.50 as possible to maximize profits. More importantly, it tells you that paying anything above €3.50 for the visit is not sustainable.
The quality of traffic coming from the advert is a big influence on the conversion through the process. Also, conversion optimization techniques can improve the conversion rates between each step and therefore increase the budget for buying the traffic initially.
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