What’s The Bottom Line?

Original artist: http://www.flickr.com/photos/stopdown/1952930973/At the end of the a day, what do you care about?  Is it number of sales, new feed subscribers, or just overall revenue?  It’s all dependent upon what your values and end goals are.  Maybe it’s a mix of factors that you’re concerned with, and in that case evaluating and improving upon them becomes much more complex.

For the sack of simplicity, let’s say your end goal is driving up revenue.  There are a lot of factors that can cause it to grow that includes everything from increasing the cost of a product to improving the amount of organic traffic.  The trick is understanding how changes you implement actually make a difference.  In order to distinguish what’s happening it’s best to only make a single alteration at a time.

I decided to up the price of a product from $6 to $9, and here’s the results:

Pre-change goal conversion data 6.23%

Post-change goal conversion data 4.95%
Time to do some calculations…

Average value prior to change: 0.0623
Average value after change: 0.0495
Standard deviation of change: 0.0161
Number of sales since change: 377
Student’s T-Value: 15.46
Probability the change is due to chance: 0.00%

Well all that means is that the increase in product cost did affect the conversion rate.  Big surprise, right?  And here’s the final figures:

Estimated monthly revenue pre-change: $618
Estimated monthly revenue post-change: $927
Estimated increase in overall monthly revenue: $309

That may look all well and good, but it’s not reality.  For this example site, traffic actually dropped to 1/5 of its original level, which means slightly under 1/3 of its original revenue.  The reason for the drop is a decreasing need for the product and some competition popping up here and there.  The good news, at least for you, is that this example is still relevant.

When you’re looking at your goals and evaluating shifts, it is essential to ensure that those changes are significant.  It’s also important to account for the other effects your alterations may have had.  If you have multiple types of conversions on your website, how was each of them affected?  Which one do you value more?

Take a step back, reexamine your bottom line before and after you’ve made a revision, and confirm the significance of a changes impact.

~ by admin on April 21, 2010.

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