Traffic and Conversion: The Biggest Online Marketing Mistake Your Ad Agency Is Probably Making For You

Filed in Internet Marketing Basics by on June 16, 2010 0 Comments

Traffic vs. conversions: what’s the difference?

There are two basic ingredients to online marketing: traffic and conversions.

Traffic has to do with getting people to your website. Conversion is getting them to take action once they are there. In this article I’ll show you how to increase your conversion rate without spending extra marketing dollars.

But first, let me tell you a story….

A friend of mine has a business with most of his sales happening online. He was very unhappy with his measly sales and asked me to come up with some ideas to help him get more visitors to his site. He figured he had a visitor TRAFFIC problem.

I agreed to help. But first I needed to  install some Google Analytics on his site and watch his numbers.

Let me say that I was very surprised to learn he had around 100 visitors per day to his website and an average of ONE sale per month.

At this point I realized my friend didn’t have a traffic problem – he had a CONVERSION problem. His website was attracting around 3000 people per month and he was making only one sale. That’s around a 0.03% conversion rate.

Terrible.

With that rate he would need 30,000 visitors per month to make 10 sales!

So many marketing companies, ad agencies, social media “experts” and search engine optimization (SEO) firms focus on getting tons of people to your small business website. Having lots of people visit your site is great. But if they aren’t buying anything you are wasting your time.

Why you need to focus on conversions

Let’s suppose my friend can increase his conversions from .03% up to 2%. How does this change things? A 2% sales conversion on 3000 visitor is 60 sales per month.

Do you see why conversion is more important than traffic? If I were to spend time, energy money and resources on one thing for you – it would be to make your website convert better.

I suggest that you take a two-step approach to your online marketing. Rather than start with driving traffic to your site, spend time making sure people that do visit your site convert into leads and customers.

We can see why ad agencies and media companies focus on website traffic. It makes them look good and they can show you huge numbers. It is much easier to say “look we got you 3000 visitors this month,” than saying “look from the 3000 visitors we got you this month you made 60 sales.”

The reality is – you don’t have time to mess around with traffic… at first. It doesn’t matter if 5 million people visit your website. The only thing that matters to your bottom line are sales.

By focusing on conversion you focus all your energy around a specific outcome. With this mindset – traffic to your website is no longer your goal – conversions are. Conversion are how you measure your effectiveness.

Once you know your conversion rate you can ramp up your traffic marketing with predictable results and virtually for free.

Let me explain.

How to figure out your marketing numbers

In order to calculate your monthly conversion rate, you will need to know your total monthly website visitors and the total number of sales you are making each month. Simple right.

Now divide the number of sales by the number of visitors.

SALES / VISITORS = CONVERSION RATE

For example, let’s say you have 1000 visitors to your website each month and you make 10 sales. If you divide 10 by 1000 you’ll get .01 (or 1%).

10 sales per month from 1000 visitors = A 1% conversion rate.

Now let’s go a little deeper. If each sale is $10 (with a conversion rate of 1%)  you made $100 from 1000 visitors. If your numbers are consistent month to month we can assume that for every 1000 visitors to your site you will make another 10 sales (equal to $100).

So this basically means that you can SPEND up to $100 to get a second 1000 visitors and still break even (since it will cost you $10 for each new customer).

If you spend $50 for 1000 more visitors you will have made $50 profit (and it will have cost $5 for each new customer).

And if you spend only $20 to get 1000 more visitors you will have made $80 profit (and it will have cost you $2 for each new customer).

Remember all these numbers are based on a 2% conversion rate. If your conversion rate is 1% these numbers won’t work and you can lose money.

So it is VERY IMPORTANT that you know exactly what your conversion rate is. This will inform your marketing budget, approach and strategy.

Applying conversion rate to your business

Warren Buffet is the wealthiest man on the planet. Each day he invests his money (lots of money) in the stock market. One fraction of a percentage point difference in his stock can mean he loses or gains billions of dollars.

Numbers (even very small numbers) matter. Big time.

Do you think Warren Buffet pays attention to his numbers? You bet. And if you are a serious Internet marketer or social media marketer you need to pay attention to your numbers too.

If you can master your conversion rate you can predictably market your products and services indefinitely. It’s simply a matter of scaling your efforts.

Just imagine what this will do for your business.

Today’s action step

  1. Figure out your sales conversion rate. Divide the number of sales by the number of visitors.
  2. Determine how much you can spend per new customer. Don’t go over this amount and you will never lose money in your marketing.

Now go take action.

This article is part of the Internet Marketing Basics series where we cover the fundamentals of internet marketing and social media.

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Joel Mark Witt is the Publisher of Folk Media and author of 21 Days To Twitter Leadership. He is a producer, author, speaker and social media marketing coach who consults with businesses and nonprofits on how to use social media in marketing and communications. Get more from Joel on Twitter or Google Buzz.

*Photo by invisiblekid2007

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