Back in 2009, I had to give a presentation on online marketing to a group of business people.
While preparing my PowerPoint slides for the presentation, I was trying to think of a simple way to explain a complex topic – how to increase your sales and profits using the power of the internet.
After thinking about this long and hard, I came up with a simple mathematical formula that ANYONE can understand, use and implement to get your own increased profits. That formula is:
Success = Product x Traffic x Conversion
This simple formula contains 3 different components – each multiplied by the other.
Component #1 (Product) refers to the product (&/or service) you sell.
It takes into account things such as the profit you make selling this product, the demand in the marketplace for the product, the ease of outselling your competitors, etc.
Moving on to component #2 (Traffic), this refers to any way in which you can advertise / market your product/service to the buying public.
Note I am not referring solely to online “web traffic,” because offline “traffic” also comes in many forms (TV, print, radio, PR, sponsorships, retail outlets, etc.).
The obvious thing about traffic is simply that you need to expose your product to people who can buy it.
For many businesses, this is – in their minds – the hardest component of the formula, because they find it difficult and/or expensive to get “traffic” to their offers.
However, I want to suggest that in fact, traffic is NOT the hardest part of the formula – that component #3 (Conversion) is in fact the king element of achieving business success.
You see, conversion is what separates the A-game players from the B, C & D game competitors in your market space.
Conversion refers to how often you get a sale compared to how many people you share your product or service with.
In online terms, let’s use AdWords as an obvious example to understand how conversion works.
Let’s assume that your google ad/s get seen 2500 times per month, and from that, 250 people click on your ad to get more information from your website.
Then from the 250 visitors you received from your ad clicks, 25 people go on to purchase from you.
In this scenario, your conversion rate is (25/250) x 100 = 10%.
Some AdWords advertisers even work out their conversion rate by comparing the ad views (typically called Impressions) with final sales to see how well their campaign converts overall.
In the above scenario, your conversion rate is actually only (25/2500) x 100 = 1%.
For the purposes of this discussion, it doesn’t really matter which version you choose. It is just made to illustrate a point, which I am getting to asap…
Now, what’s the point here, you might be asking?
It’s simple really.
If you go back to the mathematical formula again Success = Product x Traffic x Conversion and think back to maths 101 from primary or high school days, you might remember that anything multiplied by zero equals zero!
So, that means if you are not strong in any of those 3 elements, the overall (financial) success you will achieve is going to be very low or zero.
If your product sucks, or nobody wants to buy it, or it is way too expensive for what you offer (or way too cheap, for that matter), then you just earned a zero and failed to make any money.
If your traffic is zero or really low, and no one is getting to hear about or see your product, then you earned a zero and failed to make any money.
Lastly, if your conversions are zero or really low, that means even if 1 Million people got to see your offer every day for a month but you didn’t make any sales, this (surprise, surprise) earned you a zero and also didn’t make you any money.
Now, if you have any zeros in your business, perhaps it’s time to evaluate where they are and what you need to do to fix your problem.
If your product isn’t up to scratch from a point of view of demand, quality, value for money and so forth, maybe you need to ditch it and start again.
Or, maybe you just need to add on more products to sell with your existing range. Sometimes upsells and repeat business (instead of 1-off sales) can make a huge improvement to your profits.
Or maybe it just needs some tweaks to get it to work. That’s going to have to be your decision.
If you’re not sure which way to go or what to do, I highly recommend surveying existing/past customers. Find out what they would change or fix about it if it was their business.
Encourage them to give you brutally honest feedback. After all, there’s no point in having them not tell you the unvarnished truth, because otherwise you won’t ever get to what people really think is the problem with your product.
I’ve worked with clients who had a zero in their product category before, and it’s TOUGH to help them get sales and make a profit until they fix the problem/s with the product. And in most cases, they’re very tied emotionally to their product and don’t have the impartiality to see its weak spots.
Good luck in that case – it can be the hardest part of the formula to fix if the business owner won’t accept or admit the truth.
Moving onto traffic.
As I said above, most business people think this is the most important part of the formula. With quality advertising & marketing being so expensive, it’s often difficult for businesses to advertise their product as much as they would like.
They tend to believe it is just a case of increasing their market exposure that will bring in the big bucks.
Sometimes they are correct, but often not.
And let’s be honest, not every business can afford to blanket their major target city/state or country with a mass media advertising campaign across TV, radio, print and online.
It *IS* expensive to do that kind of mass advertising, and if you can’t afford it, then guess what, you have to make do with what you CAN afford.
Naturally, if no one has seen or heard of your business and products, the zero in the formula will come into place here.
Also, another factor to be aware of is that not all traffic is created equal.
For example, if you wanted a million visits or hits to your website with a view to growing sales, I could probably get it for you for a LOT less than you think.
The only problem would be that the quality of the traffic would be terrible.
Example 1: Advertising meat products to vegetarians.
Example 2: Advertising Rolls Royce cars to unemployed broke people.
Example 3: Advertising airline tickets to people who have a morbid fear of flying.
There are plenty of places to buy cheap traffic online, but it’s usually NASTY, crappy, poorly targeted, non-relevant traffic that is of no use to you.
This is why high quality traffic sources (such as Google AdWords) cost so much money. The people seeing your advertising are highly targeted and are often able to purchase if they like and want what you are selling.
Finally, to what I consider the most important component of the formula – conversions.
To illustrate this, let’s use a simple example.
Previously, we discussed how your ad got seen by 2500 people a month, 250 clicked on the ad to visit your site, and 25 purchased.
What would happen if everything stayed the same except the number of purchases made. If it was 30 instead of 25, that means your clicks to sales conversion rate went up from 10% to 12%.
Not a huge increase – only 2%.
However, you just made 5 more sales per month than you did previously.
AND, perhaps more importantly, it didn’t take any more ad views/impressions or clicks. You essentially spent exactly the same amount on advertising costs as you did in the previous example, but you got 5 more sales.
In other words, your Return On Investment (ROI) went up!
How about if you increased from 25 sales to 50 sales?
Now your conversion rate is 20%! Double the original 10%!
Well done, you marketing super-star! 🙂
This is why I believe conversion is more important than the other 2 components of the formula. Because if you can increase this without increasing your advertising and marketing costs, you increase your ROI and start to win more and more.
From my experience, most businesses lose plenty of opportunities by failing to focus on conversions.
It has the potential to make the biggest improvement overall to your business’s profitability, but only if you actually work on improving it.
Something else to think about. Financial success doesn’t only get better when you increase the clicks to sales conversion rate you achieve.
If you make small conversion improvements across all 3 components (impressions, clicks, sales), the overall results go up exponentially.
So if you can increase impressions, clicks and sales just by 10% each (very do-able for most businesses), you would achieve 33 sales (8 more sales) instead of 25 sales!
The maths goes like this (all decimal places rounded off for simplicity):
2500 impressions + 10% = 2750 impressions
2750 impressions x 11% click through rate = 302 clicks
302 clicks x 11% conversion rate = 33 sales
So, after all this, how can you apply it to your business, I hear you ask?
Well, I recommend you sit down with your staff (or a trusted friend if it’s just you in the business) and break your business down into the 3 elements of the formula.
Look at your product/s. Do they need to be improved, changed, updated, maybe even raise (or lower) the prices.
Can you get a cheaper supplier of them, to help save you money and increase your profit margin?
Can you just do something simple like raise the prices by 5% – 10% to increase profit margins? Some business owners are horrified at this idea, but whether you believe it or not, lowest price is NOT usually the #1 concern of the buying public.
On the flip side, perhaps you are over-priced for the market, and by reducing your prices, you might be able to make up for the lost profits by selling more units?
Next, take a look at how you market or advertise your products.
Are you wasting money on advertising that doesn’t work effectively? This is a BIG problem for most businesses, because they don’t measure and track the effectiveness of their advertising right down to leads, sales and profit margins, etc.
In some cases, you just might not be spending enough on advertising to get over the break-even speed hump.
Or, perhaps your advertising is too inefficient and is just not getting out to a wide enough audience quickly enough.
I’ll tell you a story about that experience from my past another day…
Lastly, look at your conversions. Do you actually KNOW your conversion rates, profit margins, and other sales statistics right down to the last dollar?
Or, are you like many business people – operating on a wing and a prayer and not able to evaluate your conversion rate quickly and accurately?
Keeping good records is vital here, because what you don’t measure, you can’t improve.
Now, once you’ve evaluated your business in these 3 categories, brainstorm a variety of ways you can improve results in all 3 areas by just 5% or 10%.
You might not hit your numbers with all 3, but any increases are good and will give you hope for achieving further improvements.
At that stage, it’s just a case of rinse & repeat this process.
Evaluate where you stand with all 3 components, brainstorm ways to improve each element by 5-10% and implement. Test, record results, evaluate all data and do more of what works and less of what doesn’t.
In the end, you will start to see financial success, all thanks to a simple 3 part formula.
OK, that’s it for another day. I will expand on many of the points made in this post in future articles, but until then, have a great day and go implement this formula in your business today!
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