2007/01/08

E-Commerce Web Administrator's Ultimate Goal: Customer Conversion Rate

Courtesy of CCMedia Global Marketing

Website Traffic Isn't Everything

There seems to be a common misconception among e-commerce web administrators that an EC website's ability to generate traffic (cause) is equivalent to profitability (effect). They strongly believe that the ability to generate traffic (cause) guarantees total orders (effect), and thus, invest all their efforts in creating more traffic. In fact, visiting traffic does grow, but total orders might not increase accordingly, which might be the beginning of another dilemma.

It's time for EC web administrators dedicated to website traffic to change their thinking. There is a more important measure of website operations to be considered. The predicament faced by Amazon.com a few years ago serves to illustrate this point.

Amazon.com Past Predicament

With $113 per share and a reputation as the world's most successful B2C (Business to Customer) enterprise just five years after its launch in 1994, mega-large online bookseller Amazon.com has always operated under a standard profit model. Nevertheless, it held a pessimistic outlook on the future.

Amazon.com has maintained its amazing visitor count, averaging 15,000 visitors per month as early as April 2000. However, the website faced a financial deficit of over $1 billion. Even worse was the popular notion that attracting more visitors ensures sales increase. Amazon.com tried to enhance traffic, but website revenue only faltered further. At this point, it's apparent that website traffic isn't everything. Amazon.com must rely on a more worthy measure of website operations.

Emphasis on EC profit model makes customer conversion rate the new focus.

What Is Customer Conversion Rate?

Customer conversion rate refers to the percentage of website visitors that are converted to product purchasers.

Customer conversion rate = Number of purchasers / Number of visitors

According to 1999 Forrest Report, 70% of EC websites fail to reach a 2% customer conversion rate. In other words, only two out of 100 visitors actually complete the purchasing process.

Why Is Customer Conversion Rate Important?

The cost of website operations is limited. Thus, creating the greatest revenue with limited cost is the primary objective of web administrators. A comparison between EC websites aiming for high traffic and EC websites striving for high customer conversion rate reveals noticeable discrepancies. For example, the former likely spends enormous marketing costs, but attracts a large quantity of visitors with little interest in the website's product. The latter gathers valuable resources to attract high quality visitors who match the website's target audience and are more likely to complete transactions.

Quality over Quantity

Aside from guiding web administrators to an ideal investment strategy, a focus on high customer conversion rate also instills a "quality over quantity" philosophy when it comes to visitor or member management. Even though increasing traffic through e-mail marketing, online advertising, and other methods also plays a crucial role, the process of understanding visiting habits and browsing behavior, providing the most suitable and satisfying contents and services, and generating purchasing actions is the more difficult challenge.

Sometimes a low customer conversion rate does not necessarily mean the EC website is providing inadequate products or attracting the wrong visitor segments. Instead, the problem lies in the inability of the transaction process or navigation path to allow visitors to complete transaction, causing them to exit the website. This situation often results in heavy visitor losses, rising operating costs, and diminishing website revenue. Even tremendous website traffic is helpless against this problem.

Solving Low Customer Conversion Rate

Web administrators can utilize a variety of advanced web analytics tools to find the cause of the problem. By analyzing the browsing behavior of visitors, these tools can help web administrators evaluate and enhance operating efficiency and modify website design to fit the preferences of key visitor segments. For example, analysis results can reveal how many visitors complete checkout in the purchasing process. The completion percentage can serve as the basis for monitoring operating performance. Web administrators can determine whether purchase pages are too complicated or online transaction security is insufficient. Changes can be made to dramatically improve customer conversion rate.

Summary

Customer conversion rate arose out of the emphasis on EC profit model, becoming the most important measure of website operations. It breaks away from the traditional idea of simply increasing website traffic to raise profit. Moreover, the concept of customer conversion rate can guide web administrators in creating better customer interaction. Conversely, if web administrators are clueless about customer conversion rate or how to provide the most suitable services, website operations might be facing imminent crisis.

11 comments:

Matilda said...

Great work.

Anonymous said...

Brilliant - but how do you get web admin to change there thought process..........

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