Playing with the revenue formula—Part 1
The usefulness of the e-commerce revenue formula is that it highlights the relationship of all the variables that make up your store’s revenue.
Let’s assume that your Shopify store got 10000 visitors last month, had 1% conversion rate and your average order value for the same period was $50.
Plugging these into the formula shows the following:
10000 visitors x 1% x $50 = $5000
What do you do when you want to up your revenue by 20%?
These 20% should be introduced on the left side, meaning that any of the three variables should be increased by 20%. For example, here is how the formula looks when you:
1.Increase your traffic by 20%:
12000 visitors x 1% x $50 = $6000
In that hypothetical month you drove more traffic to your site, converting at 1% with an average order value of $50. Because more people came to your website and the conversion rate stayed the same you got more orders (with the same AOV as last month) and gained a 20% increase in revenue!
2.Improve conversion rate with 20%:
10000 visitors x 1.2% x $50 = $6000
In this hypothetical situation you got the same amount of traffic as last month, same AOV, but you’ve reduced purchase friction and now 20% more people bought from you. Revenue goes up!
3.Up your average order value by 20%:
10000 visitors x 1% x $60 = $6000
In this case the traffic amount remained the same, 1 of every 100 people bought, but you either introduced a more expensive and desirable product or managed to effectively upsell people and you gained a 20% revenue increase.
As long as you improve anywhere on the left side of the equation you’ll get an increase in the output. It is up to you to choose where to focus your attention.
Which of the three core variables do you find the easiest to positively influence?