Revenue, if I had a dollar for every time someone told me that this was their most important metric, I’d be a millionaire. “Let’s increase revenue, and decrease costs”, doesn’t seem very helpful. That’s because it isn’t. We know that Revenue = conversion rate x sessions x average order value, so we can use this formula to lead us to metrics that we can use. Once we have all the building blocks of revenue tracked we can now find the factors impacting revenue with more granularity and accordingly can take action on those metrics.
Let’s break down this formula into its parts and look at them individually along with some other metrics that will help understand revenue more holistically.
The conversion rate is a ratio that indicates how many transactions you make per 100 visitors. It’s a great indicator of marketing efforts and the traffic those efforts attract. If your conversion rate is slipping, you should start by spending time diagnose potential reasons as to why. Here are some, amongst many, potential problems that affect conversion rate;
- Site speed
- Mobile compatibility
- Payment problems
- Distracted objects
- Low-resolution product photo
- Cart problems
- Product variations
- Wrong audience
- Unrelated landing pages
As you can see from the bulleted list above there are a host of areas that link to conversion rate performance. Merely tracking conversion rate as a sole metric is too general, it’s important to track all metrics that impact conversion rate. Accordingly, when you have a conversion rate drop you can identify the affecting metrics and take action.
Average Order Value
Average Order Value (AOV) is a metric that helps you understand your customers purchasing habits. The better you know your customers’ purchasing habits, the better you can deploy a more effective marketing campaign. For example, if you were to run a marketing campaign for items on your website where your customers’ AOV is 120 USD, but advertise an item priced at 200 USD, you may not get as much return on that campaign.
AOV sheds light on which products should be kept in inventory and the overall sales tactic of those items. Just like with campaigns you don’t want to be keeping items in inventory that are much higher than your AOV, these items could be difficult to sell if you don’t have a strong upsell plan in place. Accordingly, you can use AOV to help you focus on your cross-selling and upselling efforts.
Bounce rate measures the rate at which a visitor comes to your site and leaves with no interactions. Businesses want to monitor this metric because it’s a good indication of their websites “stickiness”. Stickiness refers to the overall appeal of your website to the user, this could be (amongst many) the relevance of information provided, a clear website UX/UI, page load time, incoherent terminology. If your bounce rate is going up you immediately need to start diagnosing potential issues, but as shown in the previous example there can be a wide array of problems spanning multiple departments, where would one start?
Page / Sessions
Pages / Session is key in determining the overall “flow” of your site, are people having trouble navigating through your website? Is your interface slow and laggy? This metric works closely with your conversion sales funnel, the closer pages/session is to the number 1 the less likely it is your customers are going along your conversion path. Ideally, this ratio should be closest to the number of pages you need for a conversion. Navigating through your website with ease is key for SEO, page/session is a good indicator of how easily users can navigate through your site once they have landed.
Tracking pages/session can help tackle issues such as how to categorize products so that the customer reaches the desired product more quickly. All site improvements on the user experience or user interface front will encourage the user to stay on your site and increase the odds of a user conversion.
Revenue is a general goal that all businesses look at, by following the metrics above you can look at sales driving metrics with more granularity which leads to actionability. Breakdown revenue into conversion rate, traffic, and AOV and now you can focus on those metrics individually and make a decision on how to improve them. But as you drill down deeper into the equation you realize that you need to track more and more metrics which can be overwhelming.
This creates the need to automate the analysis process to alert you to specific issues relating to conversion rate drops or spikes in bounce rates but more importantly providing the root cause for those issues so the user can take action by sharing the anomaly with its root cause to the necessary people to fix the problem.