Imagine a simple business where you sell one product to one customer persona.
You know the age, gender, religion, interests and beliefs of your target audience. You know what they like to read. You know what they like to watch. You know who they follow.
The first order of business is to set up a website that clearly explains your product, the value it provides to the customer, and offers your visitor the chance to purchase. The website should speak directly to your audience.
Once the website is set up you need to get traffic.
Getting people to the website is not hard but it might be expensive. You’ll have to pay big companies like Google and Facebook to place ads in front of your target audience. Those ads could be text (Google Adwords), pictures (Facebook and Instagram) or video (Facebook, Instagram, and YouTube).
Once somebody clicks on your ad they’ll arrive at your website. When they arrive at your website they are a visitor and you’re attempting to convert them to be a customer.
As you get more visitors to your website you can test making changes to the website to see if it converts better. Change the colors. Change the headline. Change the description. Change the pictures. As you make improvements you should see an increase in your conversion rate.
In this simple business your goal is to keep your Cost to Acquire a Customer (CAC) or Cost of Customer Acquisition (COCA) below the amount of profit that you generate from one customer.
As an example if you spend $100 to send 100 visitors to your website and get 1 sale for $150 then you made $50. This is good.
However, if you spend $200 to send 100 visitors to your website and get 1 sale for $150 then you lost $50. This is bad.
There are two things that you can do to change the math.
- You can increase the amount of visitors that you get for the same advertising cost. This requires you to make your ads better.
- You can increase the amount of orders that you get from your existing visitors. This requires you to make your website better.
An improvement of the first kind might look like spending $200 to send 200 visitors to the website. With the same conversion rate as before you’ll get two sales. The problem with this logic is that doubling the amount of traffic from an ad requires you to get another 100 people to do something.
An improvement of the second kind might look like spending $200 to send 100 visitors to the website but making the website better so that you get two orders. The benefit of this plan is that you only need to get one more person to do something (make a purchase).
Doubling your conversion rate on the website from 1% to 2% could be much easier than doubling the traffic coming to the website from 100 visitors to 200 visitors.
Keep this in mind as you think about how to spend money on advertising. You might be better off spending your money making improvements to your website.
