Why Conversion Rate Isn’t That Important…
Dan Caron here from MemberMouse.
I hope you’re enjoying the summer. There is an ease to the warmer, slower days that lends itself nicely to reflection and creativity. And today, with the birds chirping outside my Brooklyn window, I’d like to take a few minutes to introduce you to how I think about selling membership and subscription products. And with the carefree days of summer as a backdrop, I hope to open your mind to a new way of running your business, one that I’ve found to be quite powerful.
One of the hardest things to do in business is to acquire new customers. How do we get more people to buy our products and take up our causes? I’ve spent the last 15 years trying to answer this question. I’ve read almost every book on marketing I could get my hands on. I’ve tried viral strategies, long-copy sales letters, video sales letters, social media marketing, pay-per-click, media buying, affiliate marketing and radio and television advertising. Some campaigns have brought in millions in sales, and others have failed.
In my quest to acquire new customers, I spent a considerable amount of time trying to “optimize” my landing pages to achieve the highest conversion rate, thinking this was the highest leverage point. I created hundreds of different variations, hoping to double or triple my conversion rate and bring in the customers I was hoping for. I tested thousands of headlines, subject lines, colors, images, and price points. My hard-drive is littered with so many variations of landing pages, that sometimes it’s difficult to find the files I need.
In the end, after selling over 10 million dollars worth of products and services online, I’ve come to the conclusion that measuring “conversion rate” is only marginally helpful. Heresy! I know. But hear me out. Conversion rate is useful to test your price point. Beyond that, you generally can’t optimize much, unless you have a massive amount of traffic. There, I said it. Conversion rate just isn’t as useful as people think it is. Let’s break that premise down for a minute…
If I get 1 sale for every 1,000 visitors, I have a 0.1% conversion rate. That’s a tenth of one percent, pretty dismal. But what if I told you I was making $1,000 per sale, and paying only 10 cents per visitor. That comes out to a profit of $900, before taxes. Now, all of the sudden, who cares about my crappy conversion rate? Of course, this is an exaggerated example. In practice, the numbers are not always so obvious. What really matters, is understanding how much money you’re making on the traffic you’re buying, in detail. But if you’re not buying advertising, then odds are, you have a long road ahead of you, if you’re trying to sell a product and generate awareness.
I should probably add some context here for people who use MemberMouse for reasons other than generating revenue for an online business. What I’m sharing here is a specific approach to building an online business that makes real money. If you’re using MemberMouse to run a non-profit, or a local club, much of this won’t apply. If that’s you, carry on..
Back to the point. Spending all your time trying to improve conversion rate is not the best use of your time. Measure the difference in conversion between two price points, and you’ll have some useful data. Then go out there and buy some traffic and see what you’re made of. This is where the rubber meets the road for any marketer. It’s judgement day. It’s scary, and it costs real dollars.
Now, when you go out there and try and sell a $1,000 product, you’re going to hit a massive wall of resistance. People don’t like to shell out lots of cash. Remember that dismal conversion rate? Well, it’s dismal because your price point is probably too high (assuming you’re marketing directly to consumers and you’re connecting with a real need to a large enough audience). But you need to make money too right? You can’t buy traffic and make a living giving away your goods and services for peanuts! At this juncture, the easiest thing to do, is to break your high price point into payments, or a subscription. This way, the customer wins because they don’t have to shell out a lot of money up-front, and they control the risk, assuming they can cancel at anytime. And you win, because over time, you collect more revenue.
So, you’ve got a subscription product and you have a price point that is high enough for you to make money, but low enough for the customer to get substantial value. That lower price point is going to help you get conversions, and bring sales into the business. At this point, you’ve put conversion rate aside for a minute, because now you understand that it’s just not the be all, end all, that the marketing gurus want you to buy into.
Well, to really grow your business, and acquire customers, you have to buy traffic, and do so profitably. If you can, start with Adwords. It’s the biggest pond to fish in on Earth. People type in their needs, and businesses and websites try to answer those needs. That’s a pretty juicy playing field. But since we’ve tossed conversion rate aside, how are we making decisions about our business? What is going to be our new data-driven north star? Customer value.
Recognized as one of the most important metrics in business, “customer value” is something you need to measure in order to be able to make effective marketing decisions. Without it, you simply cannot quantify the value of your marketing budget. It’s impossible. Can’t do it. Won’t happen. No way Jose.
Consider this, as long as you’re making excess revenue, who cares what you’re spending on advertising? Who care what the conversion rate is, as long as you’re making money. That is what is important. Here’s the kicker, the value of a customer varies greatly based on where they were sourced from. Different websites, different keywords, and different sources of media will greatly impact how much money a customer spends with you. Far greater than changing the color of an order button.
Some of you MemberMouse customers know me, others don’t. No big deal, I’m not here for fame. I’m here to help you build your businesses, and in return, you pay the team I work with a fair price. But for those who do know me, you know my track record. And you know I will always tell it like it is. Well, I’m wrapping up this lengthy email, on this humid summer day with an important announcement. One that I think will revolutionize how Internet Marketing is done…
At MemberMouse, we work hard to deliver the best membership solution on the market, and I think we deliver on that promise. The product works nearly flawlessly. It’s rock solid, stable, and easy to use, but you guys already know that…
What I’m here to announce, is that we’re just a week or two away from releasing our Advanced Reporting Suite. Churn, Retention, Customer Value by Membership Level, Customer Value by Affiliate, and Customer Value by Product, and more. It’s all there. These reports will give you the metrics you need to grow you business. If you’re doing these calculations by hand because no other platform provides them, those days are behind you. We’ve spent a year developing this reporting suite, and the data these reports provide is incredible. We were demo’ing the reports to a well known client of ours, Ryan Lee. The words out of his mouth were, roughly, “Oh my god.”
Here’s a preview:
There is a lot of number crunching going on under the hood, and our Chief Architect Ben Daughtry spent a lot time making the reports execute with lightning speed, even given very large datasets. So he deserves the lion’s share of credit. This Advanced Reporting suite is an impressive accomplishment by our team, and one that I’m very proud to bring you, considering that it’s partly my brain-child. So, there will be a day in the very near future, a slow, hot summer day, that we’ll roll out reporting, with minimal fanfare. And some people will take us up on the offer, and use the data these reports provide to substantially grow their businesses. I hope you’ll be one of them.
Thanks for being a loyal customer.
Chief Marketing Officer
Dan is a business strategy, positioning, and copywriting guy. He’s sold over 10M dollars direct to consumer over the web. Dan believes that developing high quality products that solve widespread, urgent needs is the key to business success—and that recurring revenue models are the easiest businesses to scale when you make lifetime customer value your highest priority metric. You can read Dan’s Success Guide to learn his approach to growing a membership site into 7 figures. He’s been featured in MarketingSherpa and Mixergy.