The Saturday Checkout

#4

Making the numbers count, the ecommerce golden ratio

Read time - 5 minutes

30/12/2023

When it comes to A/B testing, not all tests are created equal. Some tests will have a much bigger impact on your bottom line than others.

So what to test? And how do you know which tests will have the biggest impact on your bottom line?

Enter the golden ratio, a simple formula created using data from top performing stores to help you determine exactly which tests represent the biggest opportunities for your store.

Let's get into it!

TLDR; Quick & Dirty

• Too often we see stores optimising for the wrong metrics. They're focusing on the wrong things, and it's costing them money.
• The golden ratio is a simple formula to help you make the most of your AB testing budget.
• 10% will "add to cart", 50% of those will "checkout", and 80% of those will complete the transaction
• Which metric is the most important to optimise for? The one that's the furthest from the norm.

Ready to dive into the details? Keep reading...

1. The Futility of Optimising for the Wrong Metric

Everyone agrees that optimising your store is a good idea. But not all AB tests are created equal. Some tests will have a much bigger impact on your bottom line than others.

Testing the colour of the "add to cart" button is a waste of time if your store is only converting 0.5% of visitors into customers. There are bigger fish to catch.

The question is, which fish, and how do you find them?

2. Enter The Ecommerce Golden Ratio

The golden ratio is a simple formula to help you make the most of your AB testing budget. It's a way to prioritise your tests so you can focus on the ones that will have the biggest impact on your bottom line.

The golden ratio is based on the following assumptions:

• 10% of visitors will add an item to their cart
• 50% of those will checkout
• 80% of those will complete the transaction

Now these numbers will vary by store & genre, but they're a good starting point, gleaned from many top performing stores.

Once you know these numbers you can start thinking about where to focus your efforts.

3. The Golden Ratio in Action

Let's say for every 1000 vistors you have the following numbers

• 57 add at least one item to their cart,
• 28 head over to the checkout and...
• 20 actually whip out their card and complete the transaction

First let's work out your "add to cart" rate. Take the 57 people who added at least one product to cart and divide by the 1000 total visitors, which works out to be 5.7%.

Next, let's work out your "checkout" rate. It's 28 people who went to the checkout divided by the 57 people who added at least one product to cart, which works out to be 49.1%.

Finally, let's work out your "conversion" rate. It's 20 people who completed the transaction divided by the 28 people who went to the checkout, which works out to be 71.4%.

So your numbers look like this:

• 5.7% add to cart
• 49.1% checkout
• 71.4% conversion

4. Which Metric Should You Optimise For?

Now that you know your numbers, you can start thinking about which metric to optimise for.

The golden ratio says you should focus on the metric that's the furthest from the norm. In this case, it's the "add to cart" rate.

How did we work this out?

First, let's take a look at the "add to cart" rate. Take 5.7 and divide by the norm of 10. This gives us 0.57.

Next, let's take a look at the "checkout" rate. Take 49.1 and divide by the norm of 50. This gives us 0.98.

Finally, let's take a look at the "conversion" rate. Take 71.4 and divide by the norm of 80. This gives us 0.89.

So your difference from the norm looks like this:

• 0.57 add to cart
• 0.98 checkout
• 0.89 conversion

Whichever is lowest is the metric you should focus on. In this case, it's the "add to cart" rate.

If you can increase your "add to cart" rate from 5.7% to 10%, you'll almost double your revenue. That's a big win, and was easy to spot using the golden ratio.

Parting Thoughts On The Golden Ratio

By no means is the golden ratio a perfect formula. It's a simple way to prioritise your AB testing budget so you can focus on the tests that will have the biggest impact on your bottom line.

Once you've picked your overall target, things get a lot more granular and there are other numbers you'll want to look at.

This is just a nice way to get started. 👍

Need more tailored advice?

Reach out, and let's chat about tweaking your store to increase your chances of converting expensive prospecting traffic into happy customers who leave glowing reviews.

Either way, best of luck, hope you're crushing it, and have a great week!

Cheers,

P.S. Found this useful? Share it with your friends. They'll thank you for it. Also, consider subscribing to my newsletter. I send out a weekly email with tips and tricks for Shopify store owners. You can unsubscribe at any time, and I promise not to spam you.