So you’re just starting out with your new analytics account. Or perhaps you’ve had it for years and have no idea how to use it. You’re wondering “Do people actually use analytics? Who actually has time to sit down and do anything with all this?” You put it off, and days, weeks and months pass. Meanwhile, your analytics account is collecting data for you. Yet it may have well be collecting dust because there’s just no time to sit down and figure any of it out.
I understand these thoughts. In fact, for a while these were my exact sentiments. Even when I worked for an Internet Retailer Top 500 company, I rarely found the time to put into figuring out how to use Google Analytics. It just looked like a lot of data to me. But one day, in 2010, I was attending the eTail West conference when I finally had a breakthrough moment. As I watched the lead data analyst at Back Country, I discovered how to break it all down with one simple formula:
This analyst, Michael Freed, spoke about this one simple formula the entire time. It seemed to blow the entire audience’s mind. But what on earth does the formula mean? Please allow me to explain. The revenue your website generates is a reflection of the following:
1. Your website’s traffic
2. Your website’s conversion rate, and
3. Your website’s average order value
You can use this whether you want to grow your revenue or troubleshoot low sales. Either way, it’s a sure-fire recipe for business growth.
Let’s illustrate using this formula. Your boss calls to your attention to the fact that revenue happens to be down this quarter. He wants to use another sale just like the last one, but you know there’s a better solution. Remembering the above formula, you decide to check your Google Analytics account for ideas.
At a glance, you see that your revenue is down, but you already knew that. When did this problem start? You decide to dig further, and see that the average order value hasn’t changed over the last few months. Neither has the traffic. But, you do spot a dip in your conversion rate sometime in the last month. While you can’t see why just yet, you now see that using this formula, the conversion rate is what to inspect.
You decide to look for the chink in the armor, observing how the main pages have performed. Where in the checkout funnel has the performance dropped? Is it on the home page? Maybe your most popular category pages? How about the cart page? As you check your purchase funnel you finally spot it… The dip happened on your company’s Checkout > Shipping page.
Thinking back, you realize that sales decreased after a new feature was added to that page! Your developer now has another problem to solve, but at least you’ve spotted the culprit. You’re now the man (or woman) of the hour. You’ve saved the company from losing hundreds of thousands of dollars in lost sales. Bravo!
Let’s look at another example of our formula. Your company is successful, but you’re tired of the financial plateau you seem to have arrived at. Day in, day out, the revenue is generally the same with the occasional small ebb and flow now and then. Your stakeholders have different ideas on how to approach it, but none of them seem to be helping. Determined, you enter into the next meeting armed with data in-hand. Prepare to look like a genius.
Keeping in mind the trusty formula, you prepare for the meeting with an hour in Google Analytics. You recall that if you want to grow your online revenue, it MUST be in one (or more) of the three areas:
2. Conversion rate
3. Average order value
So you decide to start by checking the conversion rate. Looking at the site traffic, you pinpoint the top three trafficked pages of your website. Unfortunately you don’t spot anything broken with them. Knowing you’re not troubleshooting anything, you decide to see what the competition is doing. You make a discovery. The functionality on your main pages is just harder to use than your competitors’ main pages! (And why would customers go with you when the other guys are doing the same thing, only better?)
So after you make your discovery, you share this at your meeting. You’re rewarded with immediate budget approval on bringing your pages’ functionality up. Days later, the conversion rate on those pages pick up, and again you’ve saved the day. Way to go!
That’s enough about the formula. It’s also worth mentioning that if you use email marketing, you need to be tying it to your site analytics. Why? Many ESPs do have analytics reports, but if they’re not tied in, you only know half the story. ESP reporting can speak to open rates, bounce rates, etc., but how about your financial stats? Which email generated the most revenue? Which generated the least? Let’s be honest. Even if your marketing email has a high open rate, it may be generating low revenue for some other reason. You just may be just the person to change that, so be sure to tie them together. Also give your emails a campaign code so you can actually find these emails in your analytics program. This will allow you to compare them, checking to see what is and isn’t working with your email marketing.
So give this a try, and be sure to keep the above analytics formula handy. Whether you need to fix something or just grow your business, you’ll know how to use your analytics as a weapon. After giving this a shot, be sure to let us know how it worked out for you. Have your own analytics formulas to show off? We’d love to hear your favorite formula(s) as well, so please leave a comment below.