The answer to this question is a simple case of mathematics, and considering a ‘conversion funnel’. For many years I worked as a Dealer Principal in the automotive retail sector. Based on the performance of the sales staff, I knew how many people, on average, they would need to speak to, to make one sale. We constantly measured conversion rates. How many people who test drove a car would buy one? How many visitors to the showroom would take a test drive? How many people who rang in making any enquiry would make an appointment to visit the showroom, etc etc.
Below is a conversion funnel relating to online book sales.
Let’s create a scenario, relating to the promotion of books, using the above conversion funnel. We’ll say you’ve been approached by an online company who want to promote your book on their website. They state you’ll only get charged if a visitor ‘clicks’ on your link/advert on their site, and they want to charge 10 cents per click. We need to make another assumption – the royalty you receive from the sale of your book. If using the Amazon 70% royalty scheme it could be two or three dollars. Let’s be reasonably ambitious and say $2.50. In our scenario that $2.50 will pay for 25 clicks. If 20%, who click on the link, buy your book, that will provide five sales. So that’s $2.50 out, to get $12.50 in. That’s a pretty good return on investment in anyone’s eyes. But wait a minute. How realistic is it that 20% will make a purchase? We can examine the question by developing the scenario further.
The company approaching you has, say, an impressive 100,000 Twitter followers, and use Twitter to promote their service . . . and your book. The first thing to consider is how many followers actually visit the site, and how many of these visitors are unique? This is the first question to ask the promoter. That 100,000 audience will drop dramatically in terms of active clicks. Let’s be generous and say 10% do. So now the site has 10,000 visitors. What percentage will click on YOUR link? This could be 5%, or in other words 500 people (That would be a high percentage considering all the books being promoted on the site). If you are being charged 10 cents per click, those clicks have just cost you $50. You now need to make 20 sales to cover your costs. OK, so we now have 500 viewers looking at your promotional page on this particular site, with a link to Amazon. How many will click the Amazon link? 10%? If we are lucky. So now we have 50 visitors on the Amazon site. Yikes, you need 40% to buy the book just to achieve breakeven. What sorts of numbers convert to sales on Amazon? Sadly it’s a lot lower than that, and when I say a lot lower, I mean something in the region of 0.1%. Some items will convert higher, and some will be lower, but when I looked at a recent sample of 160,000 visits, across a selection of e-books, it wasn’t far from 0.1% in terms of those actually making a purchase.
I’m now going to turn the numbers on their head, using a 0.1% Amazon conversion. I think I’ve been exceptionally generous with all the previous conversions, but I’ll stick with them for the point of this exercise. To make one sale, you’ll need 1000 visitors to your book’s page on Amazon. If 10% clicked on the Amazon link on your promotion page, you’ll need 10,000 visitors to that page . . . to make one sale . . . and earn $2.50 in royalties. If those 10,000 visitors to your page came from a conversion of 5% visiting the website promoting your book, then the website will need to have 200,000 visitors, and if they arrived at the site due to 10% of all Twitter followers reaching the site, then this particular company need 2 million followers – not 100,000. If you think that’s bad news, remember you’ve had 10,000 visit your page on the promotional website, at 10 cents a click. That $2.50 sale has cost you $1,000.
I accept all the figures here are hypothetical, but one of the biggest mistakes people make in business is vastly overestimating conversion rates. I’ve seen it time and time again when looking at budgets and business plans. The only person who is going to win in the above scenario is the guy charging 10 cents per click.