Conversion Funnel is a phrase used in e-commerce to describe the journey a consumer takes through an Internet advertising or search system, navigating an e-commerce website and finally converting to a sale. A funnel outlines the journey a customer takes before completing a purchase. St. Elmo Lewis created a model to describe the funnel process and called it Aida, which stands for awareness, interest, desire, and action.
KPIs for Conversion Funnel Optimization
Revenue per visitor RPV is a measurement of the amount of money generated each time a customer visits your website. It is calculated by dividing the total revenue by the total number of visitors to your site and is a method of estimating the value of each additional visitor. To calculate RPV, a standard time period must be defined. Most telecommunications carriers operate by the month. The total revenue generated by all units during that period is determined. Then that figure is divided by the number of units. RPV helps you see what is working and not working in your company’s overall sales efforts. The revenue per visitor metric helps you evaluate new visitor acquisition efforts to see which strategies are working. RPV can also be used to determine how much you can afford to spend on paid user acquisition.
Conversion rate is the number of conversions divided by the total number of visitors. For example, if an e-commerce site receives 200 visitors in a month and has 50 sales, the conversion rate would be 50 divided by 200, or 25%. A conversion can refer to any desired action that you want the user to take. Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad clicks that can be tracked to conversion during the same time period. Conversion rate optimization is important because it allows you to lower your customer acquisition costs by getting more value from the visitors and users you already have. By optimizing your conversion rate you can increase revenue per visitor, acquire more customers, and grow your business.
Customer Acquisition Cost CAC is the cost associated with convincing a customer to buy a product/service. This cost is incurred by the organization to convince a potential customer. This is an important business metric. the CAC can be calculated by simply dividing all the costs spent on acquiring more customers by the number of customers acquired in the period the money was spent. For example, if a company spent $100 on marketing in a year and acquired 100 customers in the same year, their CAC is $1.00. Customer Acquisition Cost is the total cost of acquiring one customer. The simplest way to calculate your CAC is by adding all of your costs that you spent on acquiring new customers by the total numbers customers you acquired through those marketing efforts.
Customer Lifetime Value CLV is a prediction of the net profit attributed to the entire future relationship with a customer. the only equation you need to remember. In e-commerce, CLV is the value a customer contributes to your business over their entire lifetime at your company. Simply the sum of the gross profit from all historic purchases for an individual customer. The Importance of Customer Lifetime Value. Your customers aren’t just worth the amount of money they spend on your business today. They have future value if you’re able to retain them as customers. Customer lifetime value is important because, the higher the number, the greater the profits.