03/10/2022
I analyzed 5,000 campaigns with 450k orders in the last 60 days to plot the relationship between price and conversion rate. Here’s what you should know and why you should know it.
Sales and ROAS (or ACoS) are the two key metrics brands tend to focus on – volume and efficiency. What do they have in common? Conversion rate and price (or AOV) are the common variables in their calculations.
In a vacuum, a rise in conversion rate or increase in price results in a concurrent improvement to both sales and ROAS. Brands don’t operate in a vacuum, however, and the two variables are intertwined. Shoppers are price-sensitive, so increases in price tends to result in a decline in conversion rates.
This analysis is useful in a few ways.
It helps brands visualize the potential trade-off of a price hike. Although every brand, category, and product is different, it’s important to understand that an increase in price may or may not drive more revenue/cost efficiency. Split-testing prices and analyzing the traffic and conversion trade-offs is important.
It’s also useful in benchmarking your campaigns. If you know your price points, conversion rate, and ROAS goals, you can back into the CPC needed to hit your goal ROAS. Similarly, if you know price, conversion rate, and typical CPC, you can get a rough idea of expected ROAS or ACoS.
Note that I performed this analysis net of brand defense data, as conversion rates tend to be much higher than normal since shoppers searching branded terms are typically already familiar with the brand’s product mix and price points, meaning there is less price sensitivity and negative correlation.
Via: Shelerud
