Conversion Rate Optimization for Startups

Your First CRO Lesson: Do you even need to optimize?

Conversion rate optimization (CRO) is becoming a hotter and hotter topic these days. There’s many tools to do it; Optimizely, VWO, and now Google is even launching a new tool.

It’s a highly specialized function of marketing and UX. Not many people do it well and it’s not always an easy thing to understand. Newcomers often need to adjust their expectations (probably because of all the hype and bad literature out there).

I used to work at FunnelEnvy and I would highly recommend them if you have CRO needs. I saw the results and was privileged to be able to assist with some amazing work. I learned so much from them. They are experts in this field.

One of the best learnings is that it’s important to discuss when you should think about CRO. Especially as a resource limited startup.

Now, the truth is, most startups don’t need a serious investment in CRO. It’s usually a later stage game (arguably except for e-commerce/shopping sites). For many, it’s often their only option after growth seems to plateau. There comes a time when it’s cheaper to optimize than it is to reach new users.

That said, there are still many ways a startup can optimize or otherwise “growth hack” their business. I’d look at sites like GrowthHackers.com and Inbound.org for many ideas, but at the core of everything is measurement.

You will waste your time (and money) if you are not setup to measure and if you don’t understand the opportunity cost.

Everyone with a digital presence should be measuring day one. No excuses.

Your measurements don’t need to be perfect (because we actually deal with an imperfect science here). You don’t even need to measure everything. You’ll often hear about KPIs (key performance indicators) or the “metrics that matter most.” It need not even take a long time to set up measurement. In fact, it’s something you continue to do over time as things change. If you leave it for later, you actually create more work for yourself and you’ll wind up putting it off indefinitely. Come up with a convention and start day one. You need directional metrics.

Measuring Conversions & Drop Outs

Aside from the basics, the first thing you’re going to want to setup is a measurement for conversions and when people drop out of funnels. This can be done, for free, with Google Analytics.

I’d also suggest using Google Tag Manager to manage the events being sent to Google Analytics. I’d suggest this over triggering events from your front-end code base, for the following reasons:

You won’t tie your event tracking to your codebase or deploy process (which can get all sorts of delayed and messed up). Remember: separate concerns. You won’t always need a developer to track an event.

Some back-end events are unavoidable, but 99% of your behavioral events are from the front-end. I would manage those with GTM (at least when you’re dealing with a web site). This is a position reversal for me. As a developer I was always used to just tracking in the codebase, but over the years I have since seen the light so to speak.

Ensure your HTML has good class tags on each element. When it doubt, add a class. You’ll be able to easily use that element with GTM.

Ensure your developers get into the habit of putting meaningful class names on elements for marketing.

You can even put together a funnel in Google Analytics if your web site has page paths or titles to use. This is one of the most simple, yet effective, measurements you can perform.

A hypothetical example of a story publish funnel (measured by regular expression matches for URLs).

In this example, there are 6 parts to the funnel with a 7th page being the goal. Google will measure this as a conversion once a visitor hits the final destination page.

With it, you can tell at which point users are dropping out of the funnel so you can optimize those stages. The example above is a rather long funnel…But does breaking up the form help? Or hurt? Now you can measure.

Over time, you’ll want to get more detailed about your measurements. For example, you’ll want to send events to Google about which particular fields of a form a visitor completed. It’s possible to track precisely where a visitor abandoned a form.

Google even lets you visualize these basic funnels, so you can see where visitors are dropping out and how many convert.

Note: Google doesn’t care the order in which these pages were seen. Visitors can also come back later to complete the steps of the funnel. So more advanced measurement may be required in the future.

Understanding the Opportunity Cost

What’s opportunity cost? It’s an economics term, but I like to apply it to CRO and various UX operations. It’s the loss of potential gain from other alternatives when one alternative is chosen.

In other words, it’s what you are missing out on by not optimizing (and it may not always be money).

By now you very quickly see visitors dropping out of your funnels. People aren’t signing up or publishing content or buying or whatever your desired goals are. Keep in mind that you won’t ever get a perfect 100% conversion rate.

Why? Well, first off, it doesn’t mean you had a qualified lead just because someone hits the top of your funnel. People and robots click all sorts of things on your web site and ads.

Let me riddle you this side note batman: Did you know that there’s a certain number of people who will click your ad over your organic search result listing? It’s true. If you aren’t ranking toward the top, but you run an ad that is appearing…Users will click that. Now, if that ad happens to immediately go to the top of your funnel, guess what? Not everyone hitting that page wanted or needed to go through your funnel. They just wanted to get to your site.

If you do have 100% conversion, I’d double checking your configuration and measurement process.

The second thing to consider is that startups typically have low traffic. They are new businesses after all. No one should ever expect to get it right at first.

Often times pushing more traffic into the leaky funnel is going to yield better results.

For a long while, it’ll be better to just push traffic than it will be to spend time optimizing. You likely aren’t talking about thousands, you’re talking about hundreds or even dozens of visitors.

You’re going to have to think about statistical relevance here at some point. For that, you need a healthy sample size. 1 of 2 people converting does not mean 50 of 100 will. I’ll leave probability out of this, but I think you get it.

Let’s calculate an opportunity cost with the following scenario:

Let’s say you have 100 people hit your funnel with an 80% conversion rate for the month. So assuming it’s signups/purchases, you have 20 people who didn’t purchase.

Do you know the life time value (LTV) for each user yet? It’s something you should measure or at least estimate.

Let’s say our LTV is $100. The opportunity cost of not optimizing this funnel is, at most (and hang on a minute), $2,000.

I say at most because, remember, you won’t have a perfect 100% conversion rate. So really, if you get half of those who dropped out you’re talking about $1,000.

That’s what you’re chasing for the month — which pays out over the lifetime of the user. This may not be immediate revenue depending on your pricing model. Remember it’s LTV. So the actual revenue for the month could be even less.

Now figure out how much it will cost you to have a developer (and anyone else who is involved in the planning and building) make the changes to optimize this funnel. Let’s say it takes two people two weeks to build and that’s roughly $2,000 a person per week. That’s $8,000 to address. Sorry…Attempt to address. Remember CRO is a process that involves many tests. This will not be a once and done situation.

This means it could actually cost your business more money to go after those 20 people for the month than you will ever earn from them. Of course, this starts to shift the other way over a long enough period of time. Or… with more traffic.

So what’s the LTV of your users? How many more will you convert? How much will it cost to do so?

Armed with this information, you can start to determine the priority of optimizing. Without this information, you have absolutely no clue how important it is to address. Do not make the mistake of pretending otherwise. You can have a gut feeling, you can suspect, but you do not know (and knowing is half the battle).

Again, your mileage will vary because the numbers will be different. You might not have an already great conversion rate. The conversion might not even be part of something that generates revenue. Your LTV may be lower.

There’s many variables at play, but you shouldn’t even think about optimizing until you know the basic ones at least. These are always the questions you need to ask when determining to optimize or not.

Hey, I know. This sounds simple. Believe me though, you’d be surprised how many people don’t ask the right questions. We’re often very anxious to improve things. It’s in our nature. Try to remember to take just a few moments to ask why.

Speed is a byproduct of moving smart.

Action Items

I’m going to leave you with just 3 action items to help you jump start things. It’s ok if you don’t have measurements in place already — I can’t stress enough how many people don’t bother to measure. You are not alone and you very likely have more than enough to think about. So let’s make this easy:

Setup goals in Google Analytics (or whichever analytics tool you are using). This should be fairly straight forward (if not, Google is your friend). Having trouble? I would check out this article for common problems with your GA funnel setup. Figure out the LTV or revenue associated with each conversion in this case. You likely already have an idea and even an estimate is ok…But a measurement is even better. After you get some data flowing, calculate your opportunity cost. It could very likely be as easy as number of people not converting multiplied by LTV. You should be able to say, “We are potentially missing out on $X.” Not number of people, number of dollars.

Once you are done with all of that, you can confidently continue on with your CRO journey (or you might wait). Would you like to read more? If so, please be sure to like and share this. Thanks!