There are many factors that drive the success of an e-commerce store and in this short article, I’m going to go over 3 in particular that you absolutely need to understand, to help frame your next revenue-boosting strategy.
To begin, we’ll think about something called the “exponential effect”. When we increase or decrease a factor of a formula, the end result gets exponentially bigger or smaller. In terms of an e-commerce store, let’s look at the key factors and formula that govern revenue.
The 3 Key factors
- Traffic – How many visitors did we get on our site?
- Conversions – What percentage of visitors converted into a sale?
- Avg. order value – What is the average spend per order?
When multiplied together, we can predict potential revenue:
Traffic * Conversion rate * Avg. order value = Potential revenue
This is powerful. You can now easily see how efforts focused on a factor, affect the bigger picture. Now if we think back to the concept of the “exponential effect”, let’s run through a real-world example:
Here, I’ve forecasted 20,000 visitors next month, with 2% converting to a sale and with an avg. order spend of £98.
20,000 visitors * 2% conversion rate * £98 Avg. order value = £39,200
Cool, we can now predict what revenue we should get next month. Now, what happens if we increase the conversion rate by 1%?
20,000 * 3% * £98 = £58,800
That’s a revenue increase of 50%! What if we decide to run an ad campaign to pull in more traffic as well?
45,000 * 3% * £98 = £132,300
Our forecasted revenue has now increased by 238%! By simply adjusting those 2 factors we take advantage of the “exponential effect”.
Next steps
Of course, these are just examples that don’t take into account how you actually run a successful ad campaign to drive high-quality traffic or how to improve your store’s conversion rate by 1%. However, by framing your decision making around this simple yet powerful formula, you’ll gain a clearer picture of the potential return on any campaign, strategy or tactic you put in play.
So next time you’re thinking of a way to boost revenue, take a moment to think how it fits in with the formula.
Traffic * Conversion rate * Avg. order value = Potential revenue