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The business case for CRO

The business case for CRO

Published by

April 19, 2018

When does CRO make sense?

As with any investment, there is a time and place for CRO. Let’s get into when and how to implement CRO so it makes sense for your business.

The right time for conversion rate optimization will become obvious once you reach the limits of growth through other means. Getting to this point means you have already solved the basic issue of product-market fit, you’ve ensured regular profits from your business, and you’ve reached a relatively stable number of visitors. This is the ideal time to dedicate increased efforts to optimize your conversion rate.

(This is not to say that you can neglect the basic aims of CRO even earlier: AKA creating a user-friendly customer experience, defining your unique value proposition, and addressing technical issues.)

However, a fully fledged conversion optimization process is only possible once you have a mathematically significant number of customers, and you’re able to conduct every part of the CRO process (measurement, research, and testing) with full confidence in the results.

Prior to this point, your ROI from other activities — such as business process improvement, product development, and traffic acquisition — will be greater.

Since product development and business process improvement are somewhat outside of the scope of marketing techniques, we’ll assume you’ve managed to overcome those hurdles if you are considering CRO and traffic acquisition.

Now, let’s examine traffic acquisition briefly as a potential competing way to increase revenue.

Costs and benefits of CRO

The costs of conducting a conversion optimization process are usually presented as an up-front fee paid to a conversion optimization agency, regardless of the final result.The effects of a properly applied conversion optimization process are permanent, and additional investment can make the results even better.

Even if you test everything already, the CRO process can help you redesign your website to entirely new specifications (while avoiding costly missteps).

The cost of agency-conducted CRO is usually not tied to performance. It’s often a fixed sum, to which only the cost of tools and eventual costs of benefits for customers are added. Since an agency-led process involves close cooperation with the staff of the site being optimized, it also results in the creation of a knowledge base that enables the site’s team to continue optimizing on their own once the initial contract ends.

In truth, no ecommerce store can neglect conversion optimization and experimentation if it wants to grow.

conversion rate optimization business case - unbounce
According to an Unbounce study, this is the best combination of SEO and CRO budget (source)

And here is a quote from the article the table is sourced from:

“Your own private sweet spot (?) will depend on how successful your CRO efforts are. Perhaps you’ll only achieve a 5% increase per $1,000 spent. The only difference is that you’ll have a different chart and a different sweet spot. The important thing to learn here is that there does exist a point where you optimize your expenditure based on optimization efforts.” Oli Gardner, founder of Unbounce

Put another way, the initial cost of the CRO process is not likely to grow exponentially or significantly, even after a prolonged period.

Let’s look at the benefits CRO offers in both the short and long term.

The process of conversion optimization research has immediate benefits for every website. As we’ve seen, technical and heuristic research can provide immediate solutions to obvious issues, which can also have the fastest impact on a store’s conversion rate.

Most practitioners have reported some of the greatest increases in conversion rates in this short-term phase, even before conducting any experiments. Fixing technical and obvious heuristic issues makes a website much more accessible to visitors, and can help recover prospects who dropped out of the funnel for related reasons.

More mature websites, where these issues have already been largely sorted out, will experience steady, albeit usually lower growth.

Taking a longer view, conversion optimization improves the overall content and design of your website. These benefits will show up later and have a compounding effect over the long term. By improving your content’s quality and relevance, learning about your customers, and increasing personalization (an aspect we’ll cover in more detail later), your store can experience exponential revenue growth and even attract more visitors.

What’s behind these longer-term benefits? Simply put, the CRO process makes your website and your entire approach to customers better and more effective. Qualitative research is most useful here, as you’ll find out more about your customers…. and then you can bring your offer more in line with their expectations.

The prime benefit of CRO lies in establishing an ongoing process. As a matter of fact, that’s how all the big names in ecommerce (Amazon, etc) have found success.

When you start conversion optimization, you enter a self-perpetuating cycle.
When you start conversion optimization, you enter a self-perpetuating cycle.

Pros of conversion optimization

We’ve already covered some of the most important benefits above, so how about looking at some of the less obvious ones?

  • You can start the conversion optimization process yourself at a relatively low cost
  • In the initial phase, you’ll likely see large and immediate wins
  • You can learn more about your market and target audience
  • Conversion optimization helps make your overall marketing more effective, by allowing you to target audiences more likely to correspond to your ideal customer
CRO impact
CRO impact

Cons of conversion optimization

While the advantages of conversion optimization are many, there are only a few real disadvantages. The main disadvantage lies in the fact that the process requires effort and diligence. After the initial gains, there can be a period of decreased gains, which may disappoint you. However, as we examined above, this situation won’t last, and the gains will pick back up as the process runs its course.

Essentially, the only con is the need for patience to complete the research diligently and methodically. Sometimes this research can take a month or two.

As attractive as conducting experiments may sound, you need to keep in mind that experimentation isn’t viable unless you have enough traffic to make testing possible, and you’ve also conducted enough research to make testing cost-effective.

Another disadvantage is the time it sometimes requires to achieve gains after the initial ones. While initial gains can be immediate, the process of structuring hypotheses and running tests can take six months to a year. This kind of timeframe may be intimidating at first.

However, you can be confident that the advantages greatly outweigh the disadvantages, and that a properly conducted process of conversion optimization is the most cost-effective growth activity you can conduct.

An example calculation of the ROI you can derive from CRO.
An example calculation of the ROI you can derive from CRO.

As you can see, with an assumed conversion rate of 2%, 5000 daily visitors, a profit margin of 20%, and an increase in conversion rate of (a relatively moderate) 5%, an ecommerce store can return its entire CRO investment within 8 months. Even this minimal increase in conversion rate results in a quick return on investment.

You can do your own calculation, using our web based ROI calculator.

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Edin is a Senior CRO Consultant. Edin is into Google Analytics and testing (any A/B testing tool really) and likes to write about it. You can follow Edin on Twitter.