Do conversion rates actually matter?

Did you know that, when it comes to most offers, conversion rates actually aren’t all that important?🤔

What’s much MORE important is the funnel’s economics.

Let me explain:

For the majority of the top business owners and offer owners I know…

Their main goal is to acquire a customer either profitably or at break-even.

 

 

The reason why is simple:

They’re going to make WAY more money on the backend.

So this means sending marketing emails to them…

Hitting them with offers via the mail (aka direct mail)…

Having their call center reach out to existing customers to sell them more stuff…

Or getting them on some kind of subscription.

All of this stuff tends to have a much higher profit margin than front-end “acquisition” (aka when you acquire customers)…

Conversion Rates

 

And this is also why you often hear people say that it’s much more expensive to acquire a new customer than it is to sell to an existing customer.

You might spend $50 or $100 acquiring new customers…

But selling to them again may only cost you $5-$20.

HUGE difference and way more profitable.

So, what does this all have to do with conversion rates?

Look at it this way:

Let’s say two people each sell the exact same $50 product…

But Person A has a conversion rate of around 0.5%…

And Person B has a conversion rate of around 2%.

You might immediately think Person B’s business must be doing better, but that’s not necessarily true. In fact, in many cases, it is categorically FALSE.

Here’s why:

It turns out that Person A sells bundles on the front end of their funnel and has some really dialed in upsells in the backend of their funnel.

As a result, their Average Order Value (AOV) is $150.

Meanwhile, Person B just sells a single product on the front end, and their upsells suck so hardly anybody buys them. As a result, their AOV is $75.

Well, from that alone, it means that Person A can spend nearly double what Person B can to acquire a customer. So even though “B’s” conversion rate is better…

Person “A” is actually acquiring way more customers. Because traffic is not linear. Spending $100 to acquire a customer instead of $50 generally doesn’t bring you 2x more customers. It brings you 4x or 5x.

And that’s just the start…

Assume Person A also has his email marketing dialed in.

He knows that every time a new customer gets put on his email list, they’ll be worth another $48 on average over the course of the year.

Person B hardly ever does email marketing. Sometimes he does send out a promo, but it’s sporadic, and his list doesn’t respond that great. He gets about $5 on average during the first year a customer is on his email list.

Conversion Rates
 

 

Then you can do the same thing with subscription, call centers, and direct mail.

Let’s say that Person A gets some customers on subscription, and this adds another $25 to the Year 1 Expected Value for each of their new customers…

They use a Call Center that adds another $30 in Year 1 Expected Value for each of their new customers.

And they send out direct mail to their buyers that adds $10 to the Expected Value.

Person B doesn’t do any of these things.

 

 

So now, for Person A, their Year 1 Expected Value for every new customer is $263.

For Person B, their Year 1 Expected Value is $80.

Still think conversion rates matter?

Person B could have a 4% conversion rate, and they’re still not going to be able to scale nearly as much as Person A.

Hopefully this at least gets your wheels turning!

– SPG

 

P.S. This post originally came from an email I sent to my private list. If you want to see more stuff like this from me, you can apply to join my list using this link

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Stefan Georgi

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