Learn to control the balance between conversion rate, AOV and promotions.
A lot of stores offer promotions throughout the year to entice more visitors into becoming customers and, as a result, make your website more money.
The issue is that there’s often a seesaw effect on Revenue Per Visit as it’s pulled back and forth by conversion rate and average order value (AOV). The best examples to show this back-and-forth struggle between the two is with promotions or offers that you run on your website.
Promotions, discounts, and offers impact conversion rates by increasing motivation.
The offer you are making increases the motivation for a shopper to buy from you over a competitor. While the example above (giving everything away for free) might be an unrealistic, tongue-in-cheek example of how to improve conversion rates, it outlines the importance price has on the motivation your customer has when considering buying something from you.
Most promotions are aimed at offering an incentive that revolves around saving your customer money. Some examples would be:
- Low price guarantee
- $10 off
- 10% off
- free shipping
All of these offer a cheaper price to your customers final bill.
Reducing cost has a direct effect on conversion rate. Typically, conversion rates go up with these offers. However, this can have a negative effect on your AOV since you are now eating into your own profits by giving more away for free. If you conversion rates go up, but your AOV goes down, you could end up in a wash for overall revenue (usually measured with RPV).
Thresholds impact Average Order Value
To protect against washing out your offer with lowered AOV, a lot of promotions will have a threshold assigned to them. This threshold is usually a dollar amount that the order must eclipse in order to qualify for that promotion. Here are some popular examples:
- Free Shipping over $50
- $10 off orders over $75
- 20% off order over $150
Adding a threshold that is above your website’s normal AOV can counter losses associated with a discount.
The catch is that you will see lowered motivation in your visitors to make a purchase if the threshold is too high. If you raise the threshold too much, you’ll lose motivation in visitors that don’t want to reach that far for a discount. If you lower the threshold too much, you might not make enough profits to justify offering it in the first place.
You can see that there’s a tug-of-war between conversion rate and AOV as you work with these offers.
Timing increases urgency and leads to improvements in conversion rate.
The last thing to consider when running promotions is your timing. There are two types of timing to keep in mind:
- Limiting the time in which the offer is valid (example: through June 1st)
- Time of year to run a particular promotion (Black Friday, Cyber Monday, December
- Holiday specials, Valentine’s Day specials, etc).
As you can see, you could spend all year testing promotions and help improve your business! The great thing is that promotions are high-impact testing areas since they are a big reason why someone might buy from you.
How do I know which offer to use?
Simple, test them! Usually, the best place to start is to find out how much your current promotions are helping your site. This is easily done by removing a current promotion to see what impact it is having on revenue. You might even discover that your current promotions aren’t helping as much as you think!
The next step is to see which promotion works the best. I’d start with your historical AOV on the site and then test different offers aimed at increasing that AOV.
For example, if your AOV is usually $38.50, you might try setting your offer threshold at $50. So, the test might look like this:
- Free shipping on orders over $50
- $10 off orders over $50
- 10% off order over $50
See which one of these offers improves conversion rates and RPV the most. Once you find the best of these options, you can then try adjusting the threshold to optimize the offer even more.
So, let’s say that $10 off orders over $50 worked the best. Next, try raising it to $75 and see if that makes you more money. You can also try a dual offer to increase motivation for the majority of your shoppers. Something like “$10 off orders over $50 OR $20 off orders over $100” helps motivate visitors in three different ways:
- Keeps motivating customers with lower AOVs
- Increases motivation for visitors who would spend around $100 anyway to make a purchase
- Increase AOV for visitors who are in the $75-$100 range to increase their order value even more!
There are three important factors to keep in mind while testing promotions on your site:
- Type of offer
Once you figure out the right blend of these three factors, you’ll be sure to make the most out of your promotional efforts throughout the entire year!