Online Marketing Strategy

The Case for Marketing Optimization vs Spending on Reach

For a while in my career I worked in a company where traffic was considered the main yardstick for success and growth. This became incredibly frustrating at times as, while there was always some more budget to grow traffic, getting budget for marketing optimization and conversion improvement was next to impossible.

While traffic is indeed a critical factor, it's the wrong one to focus on if you haven't invested in optimizing conversion on your web site.

Like George Kastanza figuring out a witty retort hours too late to use it, here I am some years later to present some pretty compelling math on why companies should focus first on conversion.

First, a couple assumptions:

    1. The company in this example is selling a product (but the same principles work for ad revenues, B2B lead generation, etc.)

    2. The company has not undergone extensive marketing optimization on their web site and/or promotions already.

    3. There exists an opportunity to raise overall conversion rates by 5% or more (I have yet to work with a company where this is not possible).

In the first example below we have an example of a CPM banner ad where conversion is the only option as the ad is currently running at negative ROI (See previous post on Working the Math on Online Advertising).

Example 1

As you can see, with the assumptions I put in, the ad campaign initial is returning only $.80 on each dollar spent on it. Despite the thought of "making it up in volume," spending more on reach on this campaign will only drive it further and further into the red.

On the other hand, if the company takes the time to run some insightful a/b tests on the ad and the landing page, all of a sudden the campaign is making money (ads and landing pages present significant opportunities for conversion improvement). Best of all, the campaign is now scalable. In this case, the logical thing to do is to NOW increase the reach of the campaign until it hits a point of diminishing return.

In the second example, let's have a look at web site conversion and the case for optimization versus spending on reach.

Example 2In this case we compare a 10% traffic improvement against a 5% conversion rate improvement (from 2% conversion to 2.1% conversion). "But Rob," you might say, "we make more extra revenue by paying for traffic and we get 10% more people exposed to our brand."

That argument would be true for the first month, but to truly understand the power of optimization, let's look at the math over a year:

  • Buying 10% additional reach costs $50,000 per month, which equals $600,000 per year, for a 160% overall ROI in the example shown.

  • Paying a consultant or agency $10,000 a month for 4 months is a good guess for what it might take to get 5% better conversion on a site with these kind of revenues. This assumes the site hasn't already been optimized.

    In this case, let's assume the 5% improvement kicks in 2 months into the process. What this math works out to is that a mere $40,000 spent on conversion will result in $400,000 in new revenues for a 10x or 1000% ROI.

That's pretty compelling math, isn't it? Better yet, you don't have to choose one over the other. By doing the work of improving conversion FIRST, then adding the spend on reach, you now get an example that looks like this:
Example 3

Wow. Keep in mind that no real life scenario is as simple as the case I've described. That said, these are incredibly powerful principles and I hope I've helped show you why it makes sense to focus on conversion before opening the wallet for reach.

BTW, despite my tongue in cheek reference to hiring a consultant or agency, conversion and marketing optimization is definitely an area where you should develop in-house skills if at all possible.

 


Startup Success Stories - Don't Copy What They're Doing Now!

I was having a conversation the other day with a friend who's considering launching a startup when I had a moment of clarity and was able to succinctly explain a huge mistake that many startups make.

What is the mistake?

Most startups study and emulate the most successful startups that have gone before them (YouTube, Facebook, DivX, Skype, etc...). This is totally natural, but:

Most startups emulate what these success stories are doing now, and not what they were doing when they were actually starting out.

This is often most apparent when it comes to marketing approaches. Many startup CEOs are unwilling to engage in niche marketing as "that market isn't big enough.

They look to the super-successful startups who have achieved widespread market penetration and fail to see that, almost without exception, the success stories started by appealing to a very small and focused group and then expanded out to complementary groups until they achieved market ubiquity (there's my pretentious word for the day).

By way of example, let's pretend we're launching a web startup aimed at creative professionals. We should definitely target ALL creative pros, right? Wrong, wrong, wrong. Unless you have an incredibly large budget (and a big desire to burn though it quickly), the best approach is to identify the ONE specific group of creative pros who your startup product best serves.

In this example, let's assume that graphic designers are the first target. Contact a bunch of them directly, join their trade organizations, get to know them, and win them as a group. Once you've achieved your goals with this group, create and launch a photographers channel and do the same thing. Continue to expand your reach one group at a time (illustrators, web designers, copywriters, advertising professionals, etc, etc, etc).

Along the way, make sure you're adding the features for each group (or positioning the existing features in a manner that makes sense for each group). At some point in the process you'll find that your venture has picked up a life of it's own and that users and groups are starting to emerge spontaneously.

What you'll find at the end of this is that you have a much larger pool of dedicated users and a much more "authentic" and valuable offering.


Blow Up the Silos and Achieve Consistent Customer Communications

Since I've been consulting, I've had the pleasure of doing what I call End To End reviews for several e-commerce clients. In performing an E2E review, I review all online copy and communications from a customer perspective.

As such, I take the role of the customer, typically starting at the home page, moving through the information gathering process, the product catalogue, the purchase process, the fulfillment process, the support process, the follow-up communications and customer marketing.

What I've found without exception is that at some point there is a communications breakdown where the tone or logic in the communications stream breaks down, leaving a disjointed customer experience.

These breakdowns might occur in the sales process (feature-based language on the product page turns into high pressure sales talk on the "buy" page), the fulfillment process (your ecommerce/cart vendor uses dramatically different language or contradicts what your site says up to that point), or the service process (the customer service pages feel like they are from a different company than the rest of the site).

Usually, these disjoints are caused by the fact that these different areas of the site have different "owners" who are ultimately responsible for them. These areas become their own "silos" and exist more or less independently from each other.

While this may makes sense from an internal perspective, it makes zero sense to your visitors.

How do you solve this problem? Well, unfortunately for many companies with long-established business processes, truly "blowing up" the silos is not necessarily an option. The single easiest answer is to appoint a customer advocate within the company who has the sufficient authority to oversee the continuity of communications. This might be your Director of Marketing or can be someone more junior, as long as they are senior enough (or respected enough) to get different parties within the company to get on the same page.

The tools required to perform an E2E review are not particularly sophisticated. Going through your most common customer processes, "screenshotting" your progress along the way, and making notations as you go is more or less all you need to do.

The first time you do this, I virtually guarantee you'll find and document some disconnects in your communications process that will be sufficient to get stakeholder buy-in if you present the information tactfully.

Alternatively, if you don't have the time to invest or don't have someone who can ignore the trees and see the forest, it's definitely a project worthy of bringing in help for. Either way, I have yet to see a company that does not have some serious breakdowns in their communications process, so it's definitely something you should have a look at.

Logic Is Not Always Your Ally

Can you be too smart?

Having worked in several tech companies, I've had the pleasure of working with a lot of very, very smart people (I keep hoping it will rub off but, so far, no dice).

Obviously there's nothing wrong with being smart, but there's definitely a danger in being "too smart."

Here's the deal: when confronted with a marketing challenge, the first temptation is to review the problem, think it over, and come to a highly logical solution. From a logical perspective, you can often come up with a bulletproof position that is fully defensible if questioned.

That said, you may still be dead wrong, as consumers are not necessarily logical creatures (or, at least, they may not share your same viewpoints that lead to your logical answer).

This is critical to keep in mind when preparing a web site, product page or special offer as people will typically NOT do what you expect them to do. Given this fact, it's critical that we take a stance as marketers and make marketing an "outside-in" exercise rather than an "inside-out" exercise.

Think of Jane Goodall. She didn't become an authority on chimpanzees by studying their biology and making sound logical assumptions as to how they would behave. Instead, she went into their environment, observed their behaviors and tested her hypotheses. She took the outside reality and brought it in to her studies, rather than hypothesizing internally and applying it outwards.

Fortunately, as marketers we don't have to go live with primates. We can learn about our markets through research, interviews and surveys. We then need to validate our assumptions through a/b testing and observed behavior so we can do the right thing for our customers, even when it conflicts with our own logic.

Short term testing vs long term results

Are you as addicted as I am to a/b testing? If so, you need to remind yourself from time to time to step back and look at longer term results.

The reason for this is that an a/b test will always show the "winner" of a short term test, but does not reflect what you're doing for your business in terms of customer loyalty or lifetime customer value (LCV).

For instance, I guarantee you that an aggressive sales email with a discounted offer that expires quickly will always outperform a less aggressive offer. With that in mind, however, an overly aggressive offer will hurt your brand and reduce the trust your best customers have in your offering.

So, how to protect against this? First off, use some common sense! If your home page or emails are starting to look like a multi-level marketing pitch, you've gone too far. Secondly, step back from looking simply at revenues and have a look at other critical indicators, such as the abandonment rate of various pages and the unsubscribe rate from your newsletters.

If your company has the data (which it should if you're serious about staying in business), step back and have a look at average annual sales per customer, as well as month over month, quarter over quarter, or year over year trends.

Remember, just because a single test seems to validate an overly aggressive tactic, that doesn't mean it's the right thing to do.

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