We have consultations with a lot of Shopify Merchants and a regular topic of those consultations is how to bring in more revenue.
Obviously, if you’re a business owner, you want more revenue, but I find that many Merchants have tunnel vision when it comes to this topic. A lot of the conversations we have centre around questions like “how do I improve my conversion rate?”, and “how do I get more people to buy my products?”.
I don’t know what it is about “conversion rate” as a KPI that causes so many business owners to focus solely on it as the metric to improve to unlock their growth, but it’s definitely a trend I’ve noticed.
However, the fact is conversion rate is just one piece of the revenue puzzle. Oftentimes when I have a chance to look at a store’s analytics the conversion rate is just fine and attention should be on improving store performance elsewhere.
Broadly speaking, there are three things that, together, will determine your store’s overall revenue. Those are: conversions, average order value, and lifetime value of a customer.
Let’s take a deeper look at each of those. If you would like to see exactly where to find some of the Reports in Shopify that allow you to examine the metrics we’ll be going over, you can find that information in our post Getting Started with Ecommerce Analytics and Reporting for Shopify.
While a conversion can be defined however you want (blog sign-up, lead magnet download, etc.), for most e-commerce stores, and for the purposes of this post, conversion relates directly to making a sale. As mentioned this is the area where most Merchants tend to focus their attention when it comes to trying to increase revenue.
When trying to improve your conversion metrics there are two basic ways to go about doing that. You can try to improve your overall conversion rate or you can focus on increasing your total number of conversions.
Your conversion rate tells you the percentage of website visitors who make a purchase. What’s considered a “good” conversion rate varies greatly by industry, product, and target demographic.
Your store’s total conversion rate shouldn’t be viewed in isolation though. Your add to cart rate and your abandoned cart rate also directly relate to your total conversion rate.
For example, if you only look at your conversion rate and determine you need to increase it, you may try conversion rate optimization tactics such as adding Apple Pay and Google Pay checkout options.
While you may think that increasing the number of ways users can pay will improve your conversion rate, what if your problem is actually getting people to add products to their carts? If users don’t add products to their cart, they will never even get to the Cart page to see the handy new payment options you’ve just added.
As that example shows, if you want to improve your conversion rate, make sure you focus on the entire conversion process from add to cart to check out.
The other “conversion-focused” way to improve sales is to increase the total number of conversions. Meaning your conversion percentage stays the same but you increase your traffic. More traffic + same conversion rate = more sales.
While there are obviously many ways to go about increasing your targeted traffic, we typically find a combination of Facebook Ads and Google Ads are effective for most.
Your average order value is exactly what it sounds like. How much is your average customer spending per order?
There are a number of ways you can attempt to improve your AOV. The most obvious option is increasing your prices. While potentially improving your AOV, you could see it lead to a decrease in overall conversion rates, so be sure to keep an eye on that.
Some other ideas you can test to see how they affect your AOV are adding product recommendations sections to your product listings and cart page. Some themes, like the popular Turbo, have these sections built right in. If your theme doesn’t, you can look to a Developer to build the functionality into your site, or turn to an app such as this one to add the feature.
You can also try bundling related products with the total cost being less than if a customer were to purchase them separately.
For example, if you’re selling a teapot for $30 and individual mugs for $10, you could create a product bundle featuring a teapot and two mugs for $40. While you can manually create new products that featured bundled products, you may run into a headache keeping your inventory numbers accurate. An app like this one can help with that.
Another tactic you can test out is implementing incentives for customers to spend more. For example, discounts based on order value, or free shipping once a minimum amount is spent.
Depending on what you already have set up for your store, you’ll want to make sure any changes you make here don’t result in reduced revenue though. For example, if you already offer free shipping, implementing a minimum order requirement to get free shipping could negatively impact your conversion rate. Be sure to pay attention to that and examine whether any increases in AOV are worth the potential drop in conversions.
The third area you can focus on to improve your store’s revenue is the lifetime value (LTV) of your customers. While their AOV certainly plays into this, I’m referring more to how many times, and how frequently, are customers buying from you?
This is an area that we see as an opportunity for many Merchants. It’s easy to be so focused on making the initial sale, that not much thought is put into what happens next.
Once you’ve made that first sale, you now have their email address. You have a way to communicate directly with the customer - and they know you already. Provided they had a good experience with their first purchase, the likelihood of them purchasing from you again should be much higher than the likelihood that cold traffic to your site will convert.
How often you should be emailing past customers, and what type of content you should be delivering them, depends greatly on who your customer is - but you should absolutely have some type of follow-up and continued communication strategy in place.
At the time of writing we’re only about 7 weeks away from Black Friday. If you don’t have a full email sequence setup for the days and weeks leading up to the BFCM weekend, you’re likely missing out on a large opportunity.
You can also look at creating some type of loyalty program to reward customers for coming back. Here’s a great post from Shopify that provides details on how you can set something like that up.
Increasing your store’s revenue isn’t easy, but it’s even more difficult if you’re not looking at every piece of the puzzle. It’s important to keep in mind that there’s more than just your conversion rate that contributes to your bottomline. Be sure to examine all of the outlined KPIs to determine where you should focus your attention to bring in more sales.