How Just a 2 Percent Lift in Ecommerce Conversions Can Grow Your Company by $72,000
When 98% of most shoppers fail to complete the checkout, here's how just a 2% lift in ecommerce conversions can add more than $72,000 in new revenue and drive higher profits for your business.
Little, marginal improvements matter more than you might realize in business. When most small business owners and entrepreneurs are focused on capturing new market share and building a better product than their competition, 98% of their online shoppers might just be walking away, and the scary thing is, they don't even realize how much it's costing their business.
Before we can understand how marginal improvements can yield seismic financial results for your company, let's unpack the basics. Whether you're running a small brick-and-mortar business or scaling a freshly funded startup, I can guarantee that one of the main short-term priorities is top-line revenue growth and (ultimately) growing profitability. Did you know that, according to this Shopify article, on average, just 2%-2.5% of your store's visitors finally make it down the path-to-purchase and complete the checkout? That means that 98% of most online shoppers who visit an ecommerce store, decide not to purchase — a simply staggering figure.
Moreover, as cited in this study conducted by LittleData, "Anything more than 3.3% would put you in the best 20% of Shopify stores we benchmark for conversion rate, and more than 4.6% would put you in the best 10%."
How do we calculate our store's ecommerce conversion rate? It's simple: Take the total number of completed checkouts and divide by the total number of site visitors, expressed as a percentage — have 100 visitors a day and two complete the checkout, you've got a 2% ecommerce convert rate. A simple way to track ecommerce conversion rates is to use a free analytics tool, such as Google Analytics, or an ecommerce platform that will do it for you, such as Shopify or WooCommerce.
Let's say you run a small gift basket company, and your average order value (AOV) is a $100 gift basket of goodies and freshly baked sweets, which you ship nationally. In our above example, a 2% convert rate per day would put your revenue per day at $200, or $6,000 per month ($72,000 per year).
Working the math backwards, even just a 1% increase in conversion per day (one more sale of $100) would compound annually to an extra $3,000 per month of new revenue ($36,000 per year). Imagine if we could get your ecomm conversion rate up from 2% to 4% — Your business would double, a marked improvement of new revenue growth of $72,000 per year ($144,000 revenue per year total). At a 40% gross profit margin, you're looking at $4,800 per month to pay for overhead and cover operating expenses, such as rent and salaries.
Running a larger $500,000 per year online million business at a 2% convert rate? The math is the same - just another 2% increase in ecomm convert rates could get you into the seven figure club, a $1 million per year business.
So, with so much to gain both with top-line and bottom-line growth, how come most SMBs and startups struggle to drive higher ecommerce conversion rates? Based on my consulting sessions over several years with founders, it's because they're not seeing the checkout from the customer's point of view.
Here are three key areas that stunt ecommerce conversion rates:
1. Checkout friction
Checkout friction represents the extraneous information that your store might be requiring to complete the transaction, such as forcing customers to register for an account instead of allowing first-time shoppers to simply check out as a "guest." Another simple way to avoid this blockade, is to install an API (app or plugin) that allows your shoppers to one-click and authenticate their account using their Amazon, Facebook or Google credentials without having to register and create a password with your site.
Another popular friction point is asking shoppers to verify their email address before they can complete the checkout while making an account with your store, which forces them to go log into their email account first and then (hopefully) remember to revisit the cart and complete the checkout. It's simply too much friction, and takes busy shoppers far too long, which leads to abandonment.
All transactions must convey trust with the shopper — trust that when you take their money, you will deliver the product or service in a timely manner, trust that the checkout process should protect their information with an encrypted checkout (using secure socket layer or another encrypted method), trust that if something goes wrong with the order, there's someone there to talk to in order to fix it.
A few ways to demonstrate trust with your shopper is to feature the security seal that ensures your checkout is encrypted, to highlight your company's worry-free guarantee in the cart and checkout pages, and to feature your customer service phone number in the aforementioned pages as well as in the emailed receipt and packing list that is sent to the customer with their order.
First-time shoppers have zero trust with your brand. It's your responsibility to instill trust, to lower the perceived risk of working with your company. After a great experience, a return customer will have a base level of trust from which to build their next buying behaviors off of. Initially, however, you're starting from square one.
3. Unexpected fees
The last thing a shopper is expecting is a hidden up-charge or higher than expected shipping fee. To avoid this issue, try raising your pricing to offer free shipping, or set a minimum order threshold, such as $99 per order, that ensures that all orders will meet or exceed that level. The customer's journey took a lot of steps to find your company, evaluate your offerings and make an informed buying decision — why throw out all of their effort at the last minute by shocking them with high shipping fees? Be transparent with any and all fees up-front on the product listing or detail pages, and remove last-minute buyer hesitancy by walking through the customer's shopping journey yourself to see where the buying excitement fades when a sudden, unexpected roadblock is enforced.
Now you realize the critical nature of ecommerce conversion rates, how to measure them, and how just a 1%-2% lift can significantly change the economics of your business and set your company up for faster, organic growth.
One last important point, because ecommerce conversion rates can and will fluctuate over time, depending on a variety of factors, such as seasonality, the quality of site traffic you receive, the amount of discounting or couponing you offer and other factors, be sure to track the ecommerce conversion rates in either a spreadsheet or other document on a weekly and monthly basis, highlighting any changes you make along the way to improve the customer's shopping experience.
A higher conversion rate not only benefits your company, but it deeply signifies that your customers are finding what they want and are seamlessly checking out, which in and of itself, can be one of the main reasons why they love coming back to buy from your online store.
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