Reframing “CRO”; It’s Financial or Revenue Maximisation

If you’re reading this, you almost certainly already know that CRO stands for “Conversion Rate Optimisation“; but as with a wide variety of commonly-used terms in the digital world, “CRO” as it is practiced is (generally) focused on Financial or Revenue Maximisation (FoRM).

 

This post began in the way that many do; I was looking to explain some of the fundamentals of our trade to a junior colleague of mine and in doing so, was forced to consider the realities of the work I do. I’ve always believed that you can only really begin to understand what you do and why you do it if you try to explain it to somebody else, and this was a great example.

So let’s start at the beginning; corruption of terms (and especially TLAs) that have become part of our everyday language is commonplace. We know that what we’re saying isn’t the whole truth any more, but the term (in this case CRO) has almost become a proper noun, no longer directly descriptive of its actual meaning. For instance, how many times have you heard yourself speaking about Unique Selling Points (USPs) and saying that “Free Delivery” should be one of them? It may well be a Selling Point, but it certainly isn’t Unique.

CRO/FoRM in Post-its

Now onto the meat of it; I started to explain to my colleague that for most clients, the goal is Additional Revenue (AR). And in order to deliver additional revenue, we have two levers; Conversion Rate (CR) & Average Order/Booking Value (AOV) – to aid with the visualisation, I drew the following diagram:

 

The shaded area in the middle of the line was designed to represent the general area in which we operate; the area in which the “sweet spot” between CR & AOV can be found to maximise revenue. And what I was attempting to explain is that a perfectly optimised CR (i.e. 100%) would in fact be detrimental to most clients’ goals of AR.

But having tried to use that as the explanation, I realised that in fact the diagram should’ve looked somewhat different. So I drew a new version:

 

Now the bell curve shows a much clearer visualisation of what the optimiser’s job is really about; finding that point at the top of the curve that perfectly balances CR & AOV to deliver maximum revenue. But then the conversation took a more complex turn when we brought in the spectre of “brand”. What impact does a client’s brand positioning have on the shape of their bell curve? For that, I needed another diagram:

 

For brands that position themselves as “budget”, there is a very visible limit as to how high their AOV can go without being detrimental to their business. They can hardly position themselves as a “value for money” if you double their AOV for the same product, for example. As such, their bell curve is weighted more heavily towards CR. On the “luxury” side, we have the complete reverse. For a luxury brand, the cost of the product itself is part of the brand image, which is also helps to deliver its relative scarcity in the market. If the price (and therefore AOV) is decreased in favour of CR, the product could become too attainable and suddenly it isn’t luxury anymore.

So What Difference Does It Make for CRO?

Well I would (naturally) argue that it makes a huge difference.

  1. Accepting that, for most clients, this job about revenue maximisation will put you on the right path. If you can’t see that goal, you cannot consistently deliver on it.
  2. Recognising that “CRO” perfection (i.e. 100% CR) would actually be detrimental to most clients. As with most things, it’s about achieving balance.
  3. Realising that a client’s brand positioning should have a substantial impact on the goals that you set for their optimisation programme.

Of course this one blog post is highly unlikely to alter the use of the term “CRO”. And I have also personally worked with clients for whom a financial return on investment isn’t their primary goal. But the reality is that the vast majority of businesses, CRO is an investment and they expect their employees and suppliers to work towards FoRM all the same.

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