The 5 Percent Solution

The 5 Percent Solution

I recently mentioned the "power of 5 percent" concept to a new client and was surprised it seemed such a novel idea. When we helped traditional companies increase the effectiveness of their sales forces it was something we spoke about all the time. The concept has great value and is very rewarding to apply.

For those who've never heard it, this column will be a revelation; for those who have, it should be a good refresher. Hal Slater, a sales trainer, reminded me of this concept recently, and his thinking influenced me in the writing of this column. I've adapted the concept a bit for e-tailing.

When you start talking percentages you're undoubtedly discussing measurements, so let's start with the essentials. There are 10 business metrics, or operating measurements, an e-tailer must track to measure performance: visitors, conversion rate, sales, average sale, gross revenue, margin, gross profit, overhead, net profit, and growth.

Of the 10 metrics you need to track to achieve the 5 percent solution, only 5 are key:

  • Visitors
  • Conversion rate
  • Average sale
  • Margin
  • Overhead

Why are these the five key metrics, when you've been paying most of your attention to the other five? Simply because the key metrics are the only ones you can do anything about. You have absolutely no control over the other five metrics; they are simply the mathematical results of the key metrics. However, you do have control over key metrics, and, by exercising that control, you can improve your business... 5 percent at a time.

The starting point is to make the decision, put someone in charge, and establish and use a system for measuring, testing, and optimizing your Web site. Using a system can help you:

  • Get more and better qualified visitors
  • Learn what visitors really want
  • Present better and increase your conversion rate
  • Price more accurately
  • Increase the effectiveness of your merchandizing
  • Understand your errors and learn from your mistakes
  • Train others

Do I suggest you use a system? No, I insist you use a system.

It's not intentional, but many businesses that measure their key metrics offline don't do the same online. That is how many businesses set out on the path to mediocrity while imagining themselves en route to their business objectives. Some businesses still don't know how many visitors their Web sites get in a given month and have no idea how many of those fine people made a purchase. If business is declining, company execs can't know whether it's sales (the Web site's persuasive architecture) or marketing that is failing. It's very sad because that information is even more important than revenue and net profit. Of course, they'll get those results soon enough.

What I'm advocating is using a system similar to what the Japanese call kaizen -- steady, regular, incremental, unrelenting growth. More visitors, higher conversion rates, bigger sales, and fatter margins are the payoff. Focusing on all five key metrics is how you get triple-digit gains from single-digit improvements.

For example: What if we were to increase conversion rate (on those things we can control) by only 5 percent this month. If we started out with a 1 percent conversion rate, we would finish the month with only a 1.05 percent conversion rate. I can already hear the groans. What would that do? Seems like a whole lot of effort for so little. Nevertheless, over the course of a year, that 5 percent a month would increase our conversion rate to 1.796 percent. The power of compounding would give us almost an 80 percent increase in conversion rate. Doesn't that seem more worthwhile?

The Web allows you to target your market tightly, qualify them to find out exactly what they want, and present exactly what they want presented -- in the way they want it presented -- each and every time. Certainly it takes more effort and planning to be credible and relevant to every visitor and provide them with value. Nevertheless, the unfulfilled promise of the Web is just that, unfulfilled. It takes a great deal of work to create a Web site with persuasive architecture. However, the process produces highly customized and measurable scenarios that can be tracked and optimized continuously.

It takes more patience, a high degree of planning, and more work up front to get results. It's why so many businesses tread water or produce anemic profits. It's the exceptional manager or entrepreneur who is willing to roll up her sleeves, question the value of her business, and commit to constant improvement. That's what it takes to be successful. It won't come out of a black box, you can't buy it from a consultant, and it will be more painful, at first, than profitable. That's the lesson of the 5 percent solution. Ask yourself; are you truly committed to success?