How can you most significantly increase your profitability? It’s the fundamental question underpinning the vast global retail market, because there’s always more money to be made: consider that total retail sales are expected to near 28 trillion US dollars in 2020. It’s tricky, of course — and every retailer has a distinct perspective on the best way to get ahead.
Some merchants think the secret lies in attracting more prospects. It’s simple arithmetic that’s hard to argue with: the more eyes you get on your products, the more chances you have to pick up sales. You could also call it the scattergun approach — but it has some major flaws.
Others are convinced that the best method involves squeezing more profit from regular sales. Sneak up prices where they won’t really be noticed, add in some high-margin optional extras, and get a higher yield. Seems reasonable, doesn’t it? But again, things aren’t so simple.
And then there are those who hold that conversion rate optimization (CRO) — the process of honing your sales process to turn more of your prospects into customers — is the way forward. Interestingly, retailers often overlook this approach (whether accidentally or deliberately), and even those who find some time for it can still undervalue it.
In the end, a great retail strategy will use all of these techniques, because they all work together extremely well — but I suggest starting with CRO and making it the cornerstone of your growth plan. In this piece, I’m going to explain in more detail why it’s so important.
A small change can make a big difference
Suppose for a second that you offered a product with a conversion rate of 2%, calculated through 98 of every 100 visitors to that product page opting to leave without purchasing it. Depending on the type and cost of the product, that might not actually be a bad conversion rate, but think about this: if you could bump it up to 3%, it would ultimately boost your sales by 50%.
What’s more, it would help you no matter how your business scaled in other regards. If you managed to bring in more relevant prospects, that boosted conversion rate would produce more sales from those people. And if you managed to implement system-wide improvements, you could improve your conversion rates across the board: one study found that making the “Add to cart” button visible at all times produced a 15% lift in mobile conversions.
Small changes to pricing or marketing can certainly help, but those things need semi-frequent adjustment anyway: promotional content gets stale and needs to be replaced, and prices must be reviewed and kept in line with those of close competitors. If you want to make small changes that will keep paying off for a long time, CRO is the way to go.
Understanding shoppers has other benefits
Central to the process of CRO is understanding relevant shoppers: what they want, how they think, what they expect, and what drives them. Only by working through this can you figure out what’s holding people back from buying. Are your prices perceived as too high? If so, how can you best address that? Is your company viewed as untrustworthy? How can you earn trust?
This research involves learning the basics of retail psychology (everything from the power of social proof to the value of rounded pricing) and picking through the practical obstacles that can crop up (e.g. payment gateway issues and unnecessary data entry) to gain a real appreciation of what it’s like to look at your system from an outside perspective.
Usefully, though, that level of comprehension isn’t only useful for bolstering your UI (and your CX in general) to raise your conversion rates. It’s also excellent for helping you communicate with your customers on an ongoing basis, providing the kind of customer support that keeps people coming back time and time again. Engaging in CRO, then, makes it possible to optimize your entire organizational model.
There aren’t unlimited prospects to attract
I mentioned in the intro that the focus on bringing in new prospects has some major flaws, and the most notable is that there simply aren’t unlimited prospects out there for most businesses and product types. Sooner or later that well of unfamiliar visitors will dry up, leaving you in a tough spot and forcing you to work even harder to bring in fewer people.
The better you make your conversion rates, the more readily you’ll convert strangers and existing customers, and the latter are absolutely crucial to your long-term success. Loyal customers spend more (on average, 8% of a store’s customers generate 40% of its revenue), respond more enthusiastically to marketing, are more forgiving about organizational mistakes, and — crucially — bring in high-value referrals.
Today’s markets are hyper-competitive
The other tactic I brought up was increasing prices to get more value from each sale, but this somewhat underestimates the importance of pricing in an era of hyper-competitive ecommerce. Bumping up your costs even slightly can seriously damage the viability of your business. Back in the days of brick-and-mortar retail dominance, options were often limited: if the only store in your area had exorbitant prices, you just had to deal with them. But now things are different.
And given the tight profit margins of many products (they’re often sold for little more than it cost to produce and source them), you might not have that much choice in your pricing. Too low, and you’ll start to lose money. Too high, and you’ll start to lose sales. So when it comes to using pricing, you shouldn’t be putting prices up: you should be putting them down from time to time (during seasonal sales, for instance) in an effort to spur more conversions.
For all of these reasons (and more), conversion rate optimization is not only an undervalued retail strategy: it’s also a sensible choice for your top priority when it comes to improving your business. Achieve a high conversion rate for each of your products, and you’ll lift your profitability without having to change anything else — and in the event that you massively expand your marketing or find a way to raise your prices without turning people away, your results will get even better.
Written by Kayleigh Alexandra
Kayleigh Alexandra is a writer and campaign designer for MicroStartups, a website focused on helping charities and microbusinesses. After years working in the sustainability, marketing and creative industries, Kayleigh now loves to devote her time to supporting other businesses to grow and thrive.