What is conversion rate optimization (CRO)?

Wikipedia defines Conversion rate optimization (CRO) as:

“the process of increasing the percentage of users or website visitors to take a desired action (such as buying a product or leaving contact details)”

Conversion rate optimization or CRO for short, is often discussed in relation to websites. However, CRO can be applied to every part of your business in which a consumer can convert into a lead or customer - both online and offline.

While Wikipedia’s definition of conversion rate optimization is to the point, I think it limits the way one thinks about CRO. I like to think of CRO in more broad and practical terms. I define it as:

“the process of improving the experience a business provides consumers, so more consumers convert into leads and customers.”

As you become more familiar with CRO you’ll realize that the underlying theme is the continual process of trying to provide a better consumer experience. That’s why I like to define it the way I do. It keeps the idea of the consumer experience top of mind. The better consumer experience you provide, the more leads and customers you’ll generate - it's that simple!

The continual pursuit of providing a better consumer experience should be one of the top priorities -  if not the top priority -  of every business. CRO just happens to provide a measurable framework for achieving this, and conversion rates are the primary metric by which we measure CRO success.

The history of conversion rate optimization

It wasn’t that long ago that conversion rate optimization was reserved for big business. CRO has traditionally required a large investment of time, money, knowledge and skill. Thanks to today’s technology, the barriers to CRO have been greatly reduced and are now accessible to businesses of all sizes. But it’s taken some time to get to the point we’re at. In fact many small businesses still don’t know what conversion rate optimization is or that it even exists.

In the late 1990’s and early 2000’s, a lot of businesses started to see the benefits of taking their business online and having a website. A lot of investors also took notice. With an influx of entrepreneurial ideas and investor money, a new breed of business was born - the online business. Online businesses starting to sprout up to compete with traditional bricks and mortar businesses.

People started to see online businesses as the future, and a great way to make a lot of money. Investors poured billions into online businesses, but soon they realized things weren’t as rosy as they first thought. Online businesses were burning through money trying to gain market share and many were not showing the returns required to keep investor money flowing. This lead to the dot-com bubble.

The dot-com bubble was a period in which a lot of online businesses shut down. While some people made a lot of money, there were more that lost money. Investors became more cautious. If an online business wanted to raise money from investors they needed to prove that they could produce a return. Thus began the practice of conversion rate optimization.

As businesses started to implement conversion rate optimization, they where positioned to produce better results. The type of results investors were looking for. This was a period in which conversion rate optimization was limited to the resources of big business.

In 2007 Google introduced Google Website Optimizer. A free tool to help businesses optimize their websites. However, it wasn’t until recently that smaller businesses started to take notice of the benefits of conversion rate optimization. Too many small businesses still don’t know about it.

Why improving your conversion rate is so important

With that quick introduction to conversion rate optimization behind us, lets look at why CRO is one of the smartest marketing investments your service business can make.

Let’s say your business provides a service that costs $100. We’ll use the example below as our benchmark.

• Monthly marketing investment: $1,000
• Website visitors generated: 1,000
• Website visitors converted into customers: 25
• Conversion rate: 2.5% (25 customers / 1,000 website visitors x 100)
• Cost per customer: $40 ($1,000 marketing investment / 25 customers)
• Revenue generated: $2,500 ($100 per service x 25 customers)
• Profit after marketing investment: $1,500 ($2,500 revenue generated - $1,000 marketing investment)

In the example above you’ve invested $1,000 to generate 1,000 website visitors and convert 25 of them into customers. You’ve achieved a 2.5% conversion rate and have generated $1,500 in profit after accounting for your marketing investment.

You’re happy with the results but next month you want to generate even more customers - you have two options. You could increase your monthly marketing investment to reach more consumers, with the assumption that you will generate more customers in proportion to the increase in your marketing investment. Or, you could invest in conversion rate optimization to try and convert more of the website visitors you already have into customers

Let’s first take a look at what happens if you increase your marketing budget. Let’s assume you double your marketing investment based on the assumption that by doing so, you will double your customers.

• Monthly marketing investment: $2,000
• Website visitors generated: 2,000
• Customers generated: 50
• Conversion Rate: 2.5%
• Cost per customer: $40
• Revenue generated: $100 x 50 = $5,000
• Profit after marketing investment: $3,000 ($5,000 revenue generated - $2,000 marketing investment)

By doubling your marketing investment you were able to double the consumers you reach and the customers you generated. However, your conversion rate is unchanged at 2.5% and your cost per customer is still $40.

NOTE: Doubling your marketing investment does not mean you will double the your results. I’m using this assumption to keep these examples simple.

Now let’s see what happens if you don’t increase your marketing investment,  and instead focus on improving your conversion rate.

• Monthly marketing investment: $1,000
• Website visitors generated: 1,000
• Customers generated: 50
• Conversion Rate: 5%
• Cost per customer: $20
• Revenue generated: $100 x 50 = $5,000
• Gross profit: $4,000 ($5,000 revenue generated - $1,000 marketing investment)

See the difference? By improving your conversion rate you’ve achieved better results without increasing your marketing investment. Yes, the number of customers generated is the same, but the cost to do so was far less. By doubling your conversion rate from 2.5% to 5% you have cut your cost per customer in half. Instead of it costing you $40 to generate a customer it now costs $20. You’ve also increased your profit by 33% compared to the first example. Instead of your profit being $3,000, it’s now $4,000.

But the results don’t stop here. The changes you made to improve your conversion rate will work month after month moving forward. At the end of twelve months, that’s an extra $12,000 dollars in your pocket.

In these examples I’ve made a few assumptions and used round numbers to keep things simple. But feel free to substitute your own numbers to get an idea of how these two different approaches to marketing could impact your business. I think you’ll agree, CRO is a very smart approach to marketing.

How to calculate your website’s conversion rate

Calculating your website’s conversion rate is simple if you have the right data. To calculate your website’s conversion rate you need to know how many consumers visited your website during a specific period of time, and how many leads and/or customers you generated during the same time period.

Let’s look at an example. If 1,000 consumers visited your website last month and you generated 25 leads, you would have a conversion rate of 2.5%. To calculate this conversion rate you take the number of leads generated and divide it by the number of website visitors, then multiply it by 100.

25 / 1,000 = 0.025 x 100 = 2.5%

Any website analytics program can help you track your conversion rate automatically. If you don’t have an analytics program for your website, one of the most popular is Google Analytics - the best part, it’s free.

How does conversion rate optimization work?

I believe the easiest way to think about how conversion rate optimization works, is to remember that it all boils down to providing a better consumer experience. Here’s a quick overview of how you can apply it to your service business:

1. Research: The first thing you need to do is understand how consumers are using your website. What web pages do they enter your website on? What do they do on the pages they visit? What web pages to they leave from? These a just a few of the broader questions you need to ask yourself. You can gather this information from your website’s analytics and CRO tools. We’ll cover CRO tools a little more in a moment.
2. Hypothesize: Based on your research, you can hypothesize what changes to your website might provide a better user experience and result in more leads and customers. Some common examples may include: What would happen if you changed the heading on a specific web page? What would happen if you changed the text of your call to action? What if you swapped out an image for a video? What if you removed or added a field on a web form? While this may all sound like guess work, you’ll gain some valuable insights from your analytics and CRO tools which will guide you hypotheses based on data, not guesswork.
3. Prioritize: You won’t be able to test all of your hypotheses at once, you’ll need to prioritize them. Start with the ones that you believe will have the biggest impact.
4. Test: Once you’ve prioritized which hypotheses you want to test, it’s time to test them. To do this, you’ll want to use tools designed specifically for conversion rate optimization. There are a number CRO tools you can use, but to get started for free take a look at Google Optimize. While every CRO tool is different, most will provide you with the ability to track consumer behaviour using heatmaps and session recordings, track goals, funnels, and form analytics, conduct A/B and URL split tests and more. I discuss these features in a little more detail below.
5. Analyze: Once you’ve tested a hypothesis it’s time to review the results. Did things turn out the way you thought they would? Why or why not? It’s been estimated that only 1 out of every 7 tests will produce meaningful results. But that’s okay, because many tests can be run quickly and you can run more than one test at a time.
6. Repeat: When you’ve drawn conclusions from analyzing your first test, take your findings and tweak them to see if you can improve up on them or move on to testing the next hypothesis on your list. Once you get familiar with this process it will be much easier to run multiple CRO tests at the same time.

Conversion rate optimization (CRO) Tools

There are lots of options when it comes to CRO tools. Some are free and some are very expensive. Besides mentioning Google Optimize, we won’t get into naming all of the various tools available, we’ll save that for another day. However, I will share a quick overview of the common features you’ll find in most CRO tools.

In general CRO tools will enable you to do the following:

• Track: One of the most important things a CRO tool will enable you to do is track your goals. What is it you are trying to improve? Get more leads? Get more customers? Most CRO tools will enable you to customize the goals you want to track so you can measure the effectiveness of your CRO investment.
• Analyze: One of the core features of CRO tools is the ability to gain insights into how consumers behave on your website. Most CRO tools will provide you with heatmaps and/or session recordings. Heatmaps show you where people click on your website and session recordings record consumers as they use your website so you can see any roadblocks they run into on their journey to converting into a lead or customer.
• Optimize: Another staple in CRO tools is the ability to run tests. Testing website changes is critical to optimizing your website. Two common approaches to testing are A/B and Split URL tests. A/B Tests enable you to make a change on a web page and then split your traffic so that a certain percentage of visitors see the original page and the balance of visitors see the change you are testing. Once you gather data, you’ll know whether the change you implemented produced better results than the original page. With split URL testing, instead of making a change on one page, you create two different pages and split the traffic to them.
• Personalize: A more advanced feature found in CRO tools is the ability to customize the consumers experience on your website. Here is a simple example - You can display a welcome message to all new visitors, and display a different message to all returning visitors. There are all types of things you can do with personalization. You can customize the consumer experience based on how they found your website, their location, their behaviour on your website, and more.
• Engage: Some CRO tools will provide you the ability to engage consumers through polls, pop-ups, and push notifications. These tools can be great for gathering feedback directly from consumers, as well as re-engaging consumers when they show intent to leave your website.
• Analytics: Some CRO tools have analytics built into them. While you may want to continue using a third-party analytics platform, having analytics built right into your CRO tool makes it a lot easier to see the full picture of your conversion rate optimization efforts.

Defining Metrics for CRO

You can apply CRO to any aspect of your business where a consumer’s actions provide some type of meaningful value to your business. It can be subscribing to a mailing list, scheduling a consultation, requesting a quote, or making a purchase. These are just a few examples, but the key is to make sure you define metrics that are meaningful to your business.

As a service business, I suggest your focus on leads and customers. How many leads do you generate each month from consumers calling the phone number on your website? How many customers do you generate each month from consumers completing a form on your website and then paying you for service?

There are lots of different ways a consumer can convert into a lead or customer on a website. You’re job is to define the various ways this occurs, and put in place a way to track and measure results.

The two metrics you need to track to measure your CRO success are leads and customers. Ask yourself the following two questions:

1. How does a visitor on my website convert from consumer into lead?
2. How does a visitor on my website convert from a consumer or a lead into a customer?

The answers to these two questions will help you clarify the metrics and processes you need to track and measure your CRO success.

TIP: On your website, you should have a way for consumers to convert into leads, and a separate way for consumers to convert into customers. It’s critical that you have both. While the goal is to convert consumers into customers, the reality is, most consumers will not convert into a customer on their first interaction with your business. Don’t let consumers leave your website because they are not ready to become a customer, give them a reason to convert into a lead instead.

Why CRO is a smart investment for your service business

As a service business you need a steady flow of leads and customers. As we discussed in the previous examples, you have two options for generating more leads and customers:

1. Increase your marketing investment to reach more consumers; or
2. Invest in conversion rate optimization (CRO) to convert more of the consumers you’ve already reached into leads and customers.

The problem with option one is that more than 95% of website visitors, across all industries, do not convert into leads and customers and most won’t return. 

While your business may be profitable with a conversion rate less than 5%, at some point you need to start asking yourself “why is 95% of my website traffic leaving”? Give some careful consideration to this question. You’ve paid a lot of money to get those consumers to engage with your business. Don’t be content to let them leave.

Businesses that properly invest in their websites and conversion rate optimization regularly achieve conversion rates in excess of 15%. That’s three times the average. In fact, we have customers that have annual conversion rates in excess of 30%.

Conversion rates vary by industry and market, so the numbers above may not reflect the results your business will achieve. But odds are, you’re website has a lot of room for improvement.

Take a CRO-First approach to your marketing

Some people, including marketing professionals, think CRO is something you do after you invest in traditional marketing and advertising campaigns. I like to think of things a little differently.

I believe every business should take a CRO-first approach to marketing. Here’s why - conversion rate optimization forces you to put the consumer front and centre. Every decision you make is based on the consumer, and when you take care of the consumer, everything else falls into place a lot easier.

The argument for not starting with CRO is that you need a steady flow of consumers for CRO to work. This is true. However, CRO can help you improve your search engine rankings (SEO) which can help you get more consumers visiting your website.

CRO and search engine optimization (SEO) compliment one another. Many of the best practices that apply to CRO are reflected in search engine optimization best practices. With that said, they are not equal. When you start with CRO, you naturally address many SEO factors. However, starting with SEO does not necessarily mean you will address CRO factors.

Taking a CRO-first approach to your marketing can help you reach more consumers and convert them into leads and customers.

CRO Takeaways

You should now have a much better understanding of what conversion rate optimization is, how it works, and why it’s one of the smartest marketing investments your service business can make.

Improving your conversion rate is one of the the most affordable ways to generate more leads and customers, while at the same time lowering your customer acquisition costs.

Here are a few things to remember about CRO:

• CRO is more affordable than increasing your marketing budget to reach more consumers.
• CRO provides long-term results.
• CRO can help you reduce your customer acquisition costs.
• CRO can help you improve your search engine rankings.
• CRO and SEO compliment one another.
• CRO is one of the smartest marketing investments you can make.
• Take a CRO-first approach to your marketing.

Having helped hundreds of businesses with their digital marketing over the past 25 years, I’ve become a big believe in taking a CRO-first approach to marketing. I hope some of my CRO enthusiasm has warren off on you. When you put the consumer front and centre in all your marketing decisions, you’ll put your service business on the path to more leads and customers.

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