1. MAKING BETTER DECISIONS WITH ANALYTICS Visitors to a retail site must typically go through at least three steps before completing a purchase. First, they must put a product in the shopping cart. Second, they must check out, which typically includes filling in credit card and shipping information. Third, they must confirm the order. A retail website should be constantly trying to increase its conversion rate, and the conversion funnel provides a useful way to divide the purchase procedure into steps so that a web team can analyze where in the process consumers are having difficulty or are abandoning the purchase procedure. Look at the following hypothetical conversion funnel from a month of traffic on Newegg website. Product Page 3,864,512 View Shopping Cart 468,524 Shipping Information 123,422 Review 87,244 Billing Information 106,268 Confirmation 76,860 1. What is the overall conversion rate? 2. Calculate eachmicro-conversion rate (the conversion rate from one step to the next: e.g. product page->view shopping cart) in the conversion funnel. 3. If revenue is $5,994,240, what is the average order value? 4. What is the average revenue per visit? 5. If you could increase the percentageof people who arrive at the View Shopping Cart step from Product Page to 16%, what would the final conversion rate be? How would revenue be affected? 6. If the website offered a 10% discount, the conversion rate would increase to 2.5% (applies to every step). Would this increase or decrease revenue? Would it be profitable, assuming a 50% gross profit margin on orders (before the 10% discount)?
1. MAKING BETTER DECISIONS WITH ANALYTICS Visitors to a retail site must typically go through at least three steps before completing a purchase. First, they must put a product in the shopping cart. Second, they must check out, which typically includes filling in credit card and shipping information. Third, they must confirm the order. A retail website should be constantly trying to increase its conversion rate, and the conversion funnel provides a useful way to divide the purchase procedure into steps so that a web team can analyze where in the process consumers are having difficulty or are abandoning the purchase procedure. Look at the following hypothetical conversion funnel from a month of traffic on Newegg website. Product Page 3,864,512 View Shopping Cart 468,524 Shipping Information 123,422 Review 87,244 Billing Information 106,268 Confirmation 76,860 1. What is the overall conversion rate? 2. Calculate eachmicro-conversion rate (the conversion rate from one step to the next: e.g. product page->view shopping cart) in the conversion funnel. 3. If revenue is $5,994,240, what is the average order value? 4. What is the average revenue per visit? 5. If you could increase the percentageof people who arrive at the View Shopping Cart step from Product Page to 16%, what would the final conversion rate be? How would revenue be affected? 6. If the website offered a 10% discount, the conversion rate would increase to 2.5% (applies to every step). Would this increase or decrease revenue? Would it be profitable, assuming a 50% gross profit margin on orders (before the 10% discount)?
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
Questions 4, 5 and 6.
Transcribed Image Text:# Expert Q&A
## 1. Making Better Decisions with Analytics
Visitors to a retail site typically go through at least three steps before completing a purchase. First, they must put a product in the shopping cart. Second, they must check out, which typically includes filling in credit card and shipping information. Third, they must confirm the order. A retail website should be constantly trying to increase its conversion rate, and the conversion funnel provides a useful way to divide the purchase procedure into steps. This allows a web team to analyze where in the process consumers are having difficulty or abandoning the purchase. Below is a hypothetical conversion funnel from a month's traffic on the Newegg website:
- **Product Page:** 3,864,512
- **View Shopping Cart:** 468,524
- **Shipping Information:** 123,422
- **Review:** 87,244
- **Billing Information:** 106,268
- **Confirmation:** 76,860
### Questions
1. **What is the overall conversion rate?**
2. **Calculate each micro-conversion rate** (the conversion rate from one step to the next, e.g., product page -> view shopping cart) in the conversion funnel.
3. **If revenue is $5,994,240, what is the average order value?**
4. **What is the average revenue per visit?**
5. **If you could increase the percentage of people who arrive at the View Shopping Cart step from Product Page to 16%,** what would the final conversion rate be? How would revenue be affected?
6. **If the website offered a 10% discount, the conversion rate would increase to 2.5% (applies to every step).** Would this increase or decrease revenue? Would it be profitable, assuming a 50% gross profit margin on orders (before the 10% discount)?
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