This post originally appeared on Single Grain, a growth marketing agency focused on scaling customer acquisition.
Creating a lucrative and scalable revenue model can be difficult, especially if you focus on the wrong end goals.
Brands often fail to generate a decent Return On Investment because they are too hung up on specific elements of their sales funnel. A preoccupation with certain types of conversions is just one of the reasons that your ROI can collapse.
Andrew Baird wrote an insightful LinkedIn post about the pitfalls of focusing too heavily on conversions. He asked a client for financial details, which apparently took the client by surprise.
“‘Why do you need to know my financials? Don’t you just need the conversion stats?’ the client asked.”
Baird pointed out that conversions themselves didn’t necessarily mean much if they failed to generate money. You can suffer a negative ROI if you are selling low-ticket items or can’t turn many of your leads into sales.
“Increasing conversions when every sale makes you very little (or loses you money!) won’t help,” Baird writes. “Equally if your conversions are at 75% [then] starting with conversions won’t give you the biggest bang for your efforts.”
Conversions are essential events in your revenue model. However, a specific conversion is useless if you view it as the ultimate end goal.
Learn More: LeadPages CEO Clay Collins Talks About How To Ramp Up Your Conversion Rates (Up To 75%!)
Do you know what your conversions are really worth? There’s no point in prioritizing them until you know, because determining the value of them is necessary to estimate your ROI.
It’s important to remember that most of your leads will never translate into sales. According to research from Marketing Sherpa, only 7% of leads turn into paying customers. Of course, this is a rough estimate, and conversion rates vary by industry and company. But it shows that the vast majority of conversions never generate any revenue.
Here is the equation you must follow to calculate your lead value:
Lead Value = Lead Conversion Rate * Average Sale from a Conversion
ROI = Lead Value / Average Cost of Generating the Lead
The math behind this model is simple, but these equations can be difficult to apply in real-life situations. Remember that some leads will convert to sales more easily than others. Also, some leads are more likely to convert into higher-paying customers.
You need to understand how certain types of traffic convert and how many of those leads will turn into paying customers.
For example, let’s assume that you are setting up a Google AdWords campaign. You bid on one keyword for $0.40 a click and another for $0.30 a click. You might find that the conversion rate (possibly an e-mail opt-in) on your landing page is 20% for both of these keywords. However, the lead-to-sales rate is 10% for the first keyword but only 5% for the second keyword.
The average revenue from leads generated with the first keyword is $30 and $20 for the second keyword.
In this situation, you’re paying 33% more for every lead that you generate with the first keyword that you’re bidding on. However, you are generating three times as much revenue from each lead with that keyword. This means that your ROI is over 130% higher by bidding on the keyword with the higher CPC.
If you were focused exclusively on generating as many conversions as you could for the lowest possible cost, you would actually be generating a much lower ROI.
Read More: Here’s How to Use Web Analytics to Boost Content Marketing Performance
There are several reasons that a preoccupation with conversions can actually be counterproductive. Here are some issues that you need to be aware of:
You could consider any action that a user takes to be a conversion. Subscribing to an e-mail list, submitting a quote request, or simply visiting your website are all examples of conversions. Unfortunately, none of these actions by themselves yield revenue.
You could easily increase your conversions just by setting lower goals when defining conversions. For example, instead of counting quote requests, you could focus on the number of users that show any interest in one of your products (such as asking a question about the product).
You’ll probably have a higher number of conversions, but you haven’t improved the effectiveness of your marketing funnel.
Some conversions are much more valuable than others. You might encourage 5,000 people to subscribe to your e-mail list, submit a quote request, or take some other action, but few of those leads will ever pan out. Your lead-to-sales conversion rate might be especially low if you make the following mistakes:
Some brands are tempted to make these mistakes because they want to pad their conversion numbers. This can be particularly problematic if you’re relying on a marketing team that’s compensated based on the quantity rather than the quality of your leads. This is why many brands with affiliate programs compensate their affiliates for sales rather than leads.
So, if you shouldn’t worry as much about your site’s specific conversion numbers, what should you put your energy into instead? The following suggestions will help you better create and optimize a fully-functioning funnel:
As mentioned above, conversions are arbitrarily-defined concepts. If you truly want to make your sales funnel work effectively, you’ve got to isolate specific conversion cases and determine exactly which conversions mean the most for business.
Following the description above, opting in to an e-mail list, submitting a quote request or taking other actions (from downloading case studies to making sales) all constitute conversions. And if you focus exclusively on boosting conversions, you’d treat all these options equally, even though — from a business standpoint — they don’t all make an equal contribution to your bottom line.
The point of this article isn’t to convince you that tracking conversions is useless — far from it. The goal is to help you recognize that you need to be more exacting with your measurements. It’ll take some time and effort, but it’s crucial that you identify what a given conversion means to your business in terms of dollars and cents so that you can focus your marketing efforts on the conversion types that move the needle most.
If you aren’t familiar with these acronyms, here’s a breakdown:
We aren’t just talking vegan protein sources here — we’re talking about the content that’s needed to guide website visitors through all stages of your buying process. Each piece of the puzzle is important, and yet TOFU and MOFU content is often set to the side in favor of a focus on conversion-driving bottom of funnel content.
Take a critical look at the content on your website. Can the pieces you’ve created be used to attract a larger audience, as good TOFU content can? Do they help visitors get familiar with the features and benefits of your product or service, as in the case of effective MOFU content? If you’re all about the CTAs and getting viewers to take that last step (BOFU), it may be time to build out your content strategy.
Read More: How We Instantly Raised Average Order Value by 10% [case study]
As you’re expanding your content approach, take a careful look at how you’re attributing your conversions. In that rush to drive conversions and figure out what contributed to them, many marketers give full attribution to the last touch — the final blog post that was read, the final CTA that encouraged action or some other far-down-the-funnel variable. And why wouldn’t they? It’s by far the simplest approach.
That said, it’s a woefully inaccurate way of assessing the value of each piece of the funnel. Instead of putting all your emphasis on encouraging and tracking conversions, give at least some of that energy to the process of investing in and implementing multi-touch attribution technology. Doing so becomes more essential every day in this omni-channel, omni-device world.
Generating leads is essential if you want to earn sales down the road. However, even the most targeted leads don’t turn into customers on their own. You need to carefully nurture them before a sale is made.
If you want to have a workable sales funnel, then you must execute every step correctly. You need a strategy to engage your leads and encourage them to take the next step. This process can take months, so make sure you’re committed to your goals. Keep track of your leads, define how you acquired them, and split test different variables in your marketing funnel to make it as effective as possible.
Have you found that focusing too much on conversions has hurt your ROI? Feel free to share your comments below.
Image: Wikimedia Commons, Flickr