How to determine when to invest in a mobile eCommerce website using a cost to benefit evaluation
The following article will highlight a way to create a cost to benefit evaluation that can be used to determine when to invest in a mobile eCommerce website. However, a more fundamental question is…
“Do I even need a mobile optimized version of my website?”
Some in the design community feel a responsive design can handle both PC-based and mobile-based UI use cases. From the conversion rate optimization improvements I have seen with a mobile optimized version of a website, the benefit received from the mobile version typically outweighs the benefit provided by a responsive site only.
Not that the PC-version of the site shouldn’t be responsive, it absolutely should. But including a custom mobile optimized eCommerce site in addition to the responsive PC-based version can add significant incremental revenue to the online channel, and thus is typically worth the cost.
Mobile eCommerce Website Variables
Some of the variables that can influence the decision of when to invest in a mobile optimized site include; company size and total online revenue, amount of revenue being won (and lost) via the non optimized mobile channel, mobile conversion versus PC-based conversion, and AOV from mobile versus AOV from the PC-based channel.
Here are a few good rules of thumb I use to evaluate if the cost of creating a mobile optimized website will pay for itself:
- Volume of mobile traffic. How much of the current website traffic is mobile? And importantly, what is the rate at which the mobile traffic is increasing? In general, if the percent of mobile traffic is equal to or greater than 30 percent of total traffic, then the mobile channel is experiencing a high enough volume to warrant a potential optimization project. Likewise, if the rate of growth is greater than 25% (and it is for most of my clients) then this factor should be considered as a sign that it may be time to invest in a mobile optimized site.
- Percent of revenue from mobile. How much revenue is the mobile channel currently providing in relation to the PC-based channel? And just as important, is there a large gap in the current conversion coming from the PC-based channel versus the conversion from the mobile-based channel? Most of my clients can answer yes to that question. This means there is an opportunity to optimize the mobile user experience and improve conversion (and thus revenue). Using the 30% mobile traffic number, if 30% of the traffic is only delivering a small percentage of online revenue, then that’s a major indicator that the mobile channel is costing you money.
- Mobile optimization investment. How much money (ballpark numbers are fine at this point) might it cost to optimize the website for the mobile channel? If the cost is fairly high, but the potential to improve conversion and revenue is large, then the time to take action may be soon. Likewise, smaller websites with limited revenue and or lower conversion may need to wait until they have more traffic to be able to pay for an expensive mobile optimization.
- Mobile optimization break even. What is the amount of time necessary for a mobile optimization project to pay for itself? To address when to start the optimization, identify the break even point based on the difference between the total cost to optimize the site and the incremental revenue provided after the improved site goes live. The higher the conversion and or revenue coming from the mobile channel, the quicker the payback.
For those of you like me who were not math majors, I’ve created a handy example spreadsheet you can use to ballpark the investment, and answer the question of when to create a mobile optimized site.
Non Mobile Optimized Website
Below is an example of a simple spreadsheet that documents a hypothetical existing revenue situation from the mobile and PC-based web channels of a fictional company (with a great Brand name of “Awesome Company”):
Mobile Traffic: Note that in the above example the traffic coming from the PC-based channel dominates the mobile channel, with mobile representing about half of the PC-based traffic. In reality, many of my eCommerce clients see much higher ratios of mobile channel sessions. With some, mobile is equal to or even slightly higher than PC-based sessions. I fully expect that trend to continue over the next few years, as use of mobile devices continues to accelerate world-wide.
Conversion: Because the mobile channel is not optimized, conversion is much lower than the PC-based channel (1 percent for mobile versus 5 percent for PC-based). The difference between conversion ratios is the opportunity for improved revenue. Put another way, this difference represents the amount of revenue the website is losing every single day through the mobile channel.
Number of Sales: Because of the dramatically lower mobile channel conversion, the number of sales for the mobile channel is also well below the PC-based channel. The mobile channel is producing only a fraction (10%) of sales versus the PC-based channel.
Revenue: The mobile channel is only producing $12,500 of monthly revenue, versus the PC-based channel $125,000 per month. And in our example above we assume that AOV (Average Order Value) is the same for both channels. But in reality, many of my clients with non-optimized mobile sites experience lower AOV in the mobile channel. There are many reasons for this difference, including lack of trust in the site by mobile users, the non-optimized mobile UX is hindering the buy-flow process and more. Multiplying the revenue by 12 to derive the yearly revenue reveals the true amount of revenue being lost by the non optimized mobile channel ($1.5 Million for the PC-based channel and $150k for the mobile channel).
Mobile Optimized Website
Now let’s look at the same numbers after a mobile website optimization is completed. In the mobile optimized website example above, note the dramatic improvement in revenue caused by the increased conversion. Creating a mobile optimized version of the website improved conversion from 1 percent to 5 percent. In fact, using the top 10 conversion optimization tips the experts use could in fact increase that conversion number beyond 5 percent. But for purposes of this evaluation the 5 percent number will be used.
Even though traffic and AOV has not changed, the resulting improvement in revenue (from $12,500 to $62,500 per month) improves yearly revenue in the mobile channel by $600,000! Optimizing the website improved the total online revenue upward from $1.65 Million to $2.25 Million per year.
The table below demonstrates the amount of money lost through the non optimized mobile site, the potential investment required, and the break even represented by a mobile optimization project. In this example, the cost to optimize the website is ballpark $500,000. In reality, this cost could be much less, or potentially more, based on the complexity of your business in the online space, but this is a good benchmark for now.
The optimization project would have a break even 10 months after the new mobile site is live. Looking forward, the new mobile optimized site delivers a first year incremental profit of $100,000. For the next year, the YoY incremental profit is $600,000. That represents an increase of 35 percent over the non optimized mobile site performance.
Put another way, the one time cost of a mobile website optimization permanently adds $600,000 in incremental revenue each and every year the website is live.
When presented with this cost to benefit ratio, what website owner wouldn’t immediately invest in a mobile optimized website?
Conclusion: When to invest in a mobile eCommerce website
How to determine when to invest in a mobile eCommerce website is a question that can be answered quickly and easily using the cost to benefit evaluation method demonstrated above. The ballpark numbers above can be replaced by more accurate metrics coming from the website log files and obtaining cost estimates from mobile eCommerce site developers.
For most mid to large size firms, the time to create a mobile optimized eCommerce website is now, or has already passed. They are finding the potential opportunity for incremental improvement via a mobile optimized site is great. For smaller firms and mom and pop shops, use the method above to determine when to invest. My guess is the time will be soon, more than likely in the next year or two at the most.