When I’m thinking about how to grow the business, and specifically how to grow revenue I often find it useful to break down Revenue to it’s components parts. The basic formula for revenue in an online environment for a specific period is:
Revenue = Number of Sales * Avg. Sales Value
Break it down further, it becomes:
Revenue = (Number of Visits * Conversion Rate) * Avg. Sales Value
That equation can further be broken down into:
Revenue = (Number of Unique Visitors * Avg. No. of Visits) * Conversion Rate * Avg. Sales Value
Not really. You certainly can work out any business’s revenue if you had all these component parts, but as a business owner you think of them more as levers. You push on them to increase Revenue, which is generally a nice thing. We’ll get into when it isn’t a good thing soon…
So let’s talk about each of those components in more detail.
Visits: Visits are simple – it’s the count of every single warm body (or eyeball in our case) that visits the site.
No. of Unique Visitors – instead of counting each warm body that comes into the door, you’re counting each individual. So if a customer likes to visit you twice a week, and your period is a week, he’d only be counted as 1 Unique Visitor. Simple no?
Avg. No. of Visits – Let’s say you have 10 customers, each who visit you twice a week. And 10 customers who visit you once a week. Your avg. number of visits would be 1.5 per unique visitor.
Conversion Rate – This is the number of customers who actually buy compared to those who actually just visited
Avg. Sales Value – Relatively self explanatory.
Pushing the Levers
So, how do we push the levers? Well, let’s see:
No. of Unique Visitors – this is the simplest and the one most people think about. It’s worth remembering that you have both new visitors and return visitors. New visitors can be increased by Advertising, Public Relations, Social Media, etc.
Return Visitors are a bit more difficult. These are generally your existing customers – so good customer service, regular e-mails,rewards programs, etc work well in keeping the customers we have.
Avg. No. of Visits – Here, your goal is to increase the number of times someone visits your site. The general idea of course is that the more time someone spends in your store / website; the more likely they are to buy. How do you do that? For an online store, it’s by hosting good content. The blog, the videos, reviews, etc all contribute to this.
Avg. Sales Value – Upsell, upsell, upsell. This is obviously easier in-person than online, but there are things we can do. Offering sleeves if you’re buying Dominion, expansions for Arkham Horror, related products are all ways to increase your average cart and thus increase revenues.
All kidding aside, the goal of any good retailer is to make you spend more money in their store. Sometimes, it’s for the good (e.g. pushing sleeves for Star Trek : Fleet Captains because we know the sleeves are thin), other times we’re just enablers. The trick of course is to make sure we never get too pushy and put our customers off.