This week we're discussing an unpopular take: most brands (and agencies) are doing CRO wrong.
It’s not about testing button colors or which photo looks better.
Sure, there may be some value in running isolated tests around styling, layout, image choice, etc. I don’t want to discount that there can be some value there.
But it’s totally ignoring the bigger picture of what you’re actually optimizing for.
Conversion Rate Optimization (or CRO) focuses on the idea of optimizing Conversion Rate. But conversion rate alone is a bad optimization.
You can have a great conversion rate with a failing business.
If you turn off all your paid spend over night and only send email to your top segments your conversion rate will look amazing. You’ll look like a genius for 1-2 weeks, until your unit volumes drop, you start missing your weekly and month contribution margin targets, and suddenly you don’t have enough cashflow to cover expenses.
Optimizations set around a single KPI is probably the most dangerous strategies you can undertake as an operator or founder.
And as the old saying goes: when a metric becomes an outcome, it ceases to be a useful metric.
At Aplo Group, we like to say that there’s a data point for everything in e-commerce – so it’s no wonder that people get obsessive about metrics and optimization. But getting attached to a narrow set of metrics or chasing outcomes in a vacuum without analyzing the broader impact on your business is a slippery slope, and oftentimes a risky one, too.
Running your business would be a lot simpler if you only had to focus on one metric.
But businesses are complex systems, and complex systems are anything but simple. So what do we do?
As business owners, marketers, accountants, CFOs, analysts, media buyers – what do we do to manage this complexity?
We simplify.
We create mental models and frameworks that aim to depict a complex system within a narrow set of high-impact constraints.
In a recent blog, I touched on some of the advantages (and serious disadvantages) of a traditional sensitivity analysis in financial modeling – particularly around the assumptions we as forecasters make when designing these models.
When you sensitize a model to a single variable, you’re making a fundamental assumption about your scenario; that you can manipulate one outcome without any improvement or degradation in your other model inputs.
This (oftentimes) is simply not true.
For example, let’s say you sensitive your Contribution Margin forecast to New Customer AOV. Your model would likely suggest that for every unit of AOV increase you’ll see some proportional impact on New Customer Contribution Margin.
But how do you know your CVR will stay the same? How do you know aMER won’t flex with a changing offer strategy? How do you know the same mix of products, and therefore the same COGS expense, will be able to support that higher AOV?
The best operators know that this is just not how the world works. You can’t decide that you want a higher AOV just because you wrote a bigger number in your spreadsheet.
Your analysis will suggest that you’ll see a proportional increase in CM with AOV, while your CVR, aMER, and COGS will remain equal.
But in reality, the more likely outcome will be an increase in AOV through a more expensive product mix, with a (likely) decrease in CVR and New Customer acquisition efficiency (aMER) due to the higher pricepoint, and (likely) an increase in COGS due to the re-mixing of your SKU mix and therefore potentially SKU costs.
This is why objectives alone are not enough. You need a strategy; and beyond that, you need a specific set of actions that will allow you to execute on that strategy effectively. After all, who doesn’t want a better AOV with all the upside and none of the downside?
One of the most-common complaints we hear from brands who have tried to do CRO in the past or that struggle with site performance in general is that it ends up being a lot of time, money, and effort spent with little or no-value to show for it. This is often because brands (or the agencies they hire) typically take a very “spray and pray” approach with respect to their CRO strategy.
They’ll line up a plethora of site tests and possible optimizations and then proceed to test each in order of expected impact, often in 1-2 week cycles depending on the interaction volume needed to hit their threshold of statistical significance; variables are tested one by one in an attempt to isolate for the winning attributes.
While this strategy makes sense in theory, it’s obvious why it often leads brands astray down a long, often non-value-added path.
The variables being tested don’t actually move the needle, or they work against the broader business goals.
When it comes to testing, the best brands avoid looking at CRO in terms of metrics like CVR, RPS, or AOV. Instead, they focus on the following areas within their broader e-commerce strategy:
This is not to say having a baseline expectation for CVR, AOV, revenue and profit per session, and other related metrics is not useful – but these metrics alone can only take you so far.
Furthermore, without a proper framework for understanding how those broader metrics are affected by actions taken in your marketing or site strategy, it’s impossible to actually map out clear strategies that work for your business, not just work for a narrow set of isolated metrics.
Most brands (probably) don’t need to make more aesthetic changes to their storefront in hopes of improving their performance.
Barring a major rebrand, platform migration, creative pivot, or fundamental change to your DTC strategy, the incremental value of testing button colors, arbitrary layouts, or non-distinct photos across the site is likely very low.
The majority of the value in testing will come from the convergence of offer and product strategy, which really are two sides of the same coin; how you price, how you demonstrate value through offer and storytelling, and which products you show to visitors will typically have the most profound impacts on your overall store’s performance.
From our perspective and experience, here are 5 of the most actionable strategies that brands doing anywhere between $5-50M can incorporate into their marketing plan and financial modeling:
Product Mix Analysis. Analyze your product mix and compare it against your inventory position; once you understand which products drive revenue and contribution margin versus which are mostly dead weight, merchandise your homepage, collection pages, product pages, and sales pages accordingly.
Margin Profile Analysis. You cannot effectively set marketing or financial objectives without understanding where your profitability comes from. Margin profile analysis allows you to understand which products should be heavily discounted and which should be barely discounted at all; it allows you to understand which products, of your slow movers, can be bundled in with higher-velocity SKUs to turnover bad inventory faster, while conveniently boosting metrics such as AOV along the way. Plus, depending on your catalogue, you may have already outgrown the “10% off sitewide” strategy a long time ago.
Price Testing. Want to really move the needle on AOV, or more importantly, Contribution Margin? Aside from counting on total luck, price and offer testing are probably your next best bet. One of the simplest yet most powerful CRO tests you can run is just testing your prices. This allows you to find the optimal combination of Price, CVR, and Contribution Margin or Gross Profit Per Session.
Value Offers. Buy more, save more. Threshold offers. BOGOs. The list goes on. How you merchandise your store goes beyond which products are shown on the homepage. Value offers are a clear way to deliver a discount while incentivizing customers into a higher purchase. Offer the single item at full price, or buy the 3 pack and get 30% off. Hint: build your PDPs in such a way that your best offer is your default variant.
Post Purchase Upsells. Talk about pure upside. The order has been placed, there’s no going back now. Any offer you make from this point on is basically pure margin. Test aggressively, align with your email flow offers, and make it count. Plus, it’s all post purchase, so you’re not risking anything from a CVR perspective. When done right, it is quite truly pure upside.
So with all that said, a few final takeaways.
CRO can be extremely high leverage for your business. But like anything, only if it’s done properly with the right objectives in mind – and strategies for getting you there.
In a world of almost unlimited optimizations to pursue, it’s even more important to understand where the value truly lies in order to make all the testing worthwhile.
Your partner is profitable growth.
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