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Ecommerce 101

Any shop on the web wants to accomplish primarily one thing. Sell more. The battle to increase revenue is a war of inches and degrees. To succeed, you first need to understand the math of e-commerce.

E-Commerce 101

The math of e-commerce is actually pretty simple.

Visitors x Conversion Rate x Average Sale = Revenue

Starting values
CategoriesExamplesNotes
Unique Visitors 40,000 These are all the people who visit your site
Conversion rate 1% How many of your visitors buy something
Average sale $30 Average value of an online sale
Revenue $12,000 = Visitors x Conversion Rate x Average Sale

Let’s illustrate this with some examples for an average month.

Given these variables, we can increase sales three ways:

  1. Getting more people to the site
  2. Convincing more of them to buy something
  3. Getting buyers to buy more

1. Getting more people to the site

There a many ways to increase traffic to your site. Some of these include:

  • Search engine optimization (SEO)
  • Increasing inbound links (helps SEO as well)
  • Send-to-a-friend tools
  • RSS feed for new products
  • Traditional or Pay-per-click ads (like Google AdWords)
  • Social networking (Forums, blogs, Twitter, Facebook, etc.)

For the purposes of our example, let’s assume you put time and effort into 5 of these 6 areas, and each one increases your traffic by only 2% for a total increase of 10%.

2. Convincing more of them to buy something

Once they are on your site, you need to make it easier for visitors to find what they are looking for, encourage them to buy, and remove roadblocks that may keep them from buying. Some strategies for this include:

  • Improved site design to build confidence and credibility
  • Grid-based product lists to move more items “above the fold”
  • Search, guided navigation & tagging to help visitors find what they want
  • Simplified checkout process to reduce cart abandonment
  • Enhanced product detail pages to give visitors the information they need to buy
  • Visitor comments on products to reinforce their decisions

Let’s say you implement some of these strategies and convince one more person in a hundred to buy. Increasing your conversion rate from 1% to 2%.

3. Getting buyers to buy more

If they’re going to buy, we would like them to buy more. This can often be accomplished with cross- selling, up-selling and other promotions. And if you’ve made the site easier to navigate and made your products more appealing, visitors will want to buy more.

For our example, let’s say we were able to increase the average sale by five dollars or 17%.

So where does that put us…

New & Improved Values!
CategoriesOriginalIncreaseNew Value
Unique Visitors 40,000 10% 44,000
Conversion rate 1% 100% 2%
Average sale $30 17% $35
Revenue $12,000 256% $30,800

We’ve almost tripled our sales by making minor improvements to many different areas of the store!

Of course, this is an oversimplified, idealized example. For example, getting more visitors doesn't help if the quality of those visitors goes down and your conversion rate decreases. But keeping the arithmetic of e-commerce in mind can help you prioritize changes to your site.

Good analytics can help you figure out where to start.

About the Author

  • phil cartoon tnsp

    Phil Quinn

    Phil is the founder of Quinn Interactive. He has over 20 years of design experience and built his first Web site (an on-line, 30+ page weekly newspaper complete with custom CMS) in 1994. He earned his B.A. in Graphic Design from California State University, Chico, where he also taught Web Design, Computer Graphics, and Electronic Printing and Publishing for four years. In addition, he taught a graduate level class, “Principles of Usability” at the Academy of Art in San Francisco. He is an expert in visual design, usability, and computer-based publishing systems.

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