Truths, Myths & Advice on Pricing Conversion Optimization Services

[Originally posted on Conversion Conference Blog]

Over the last year, I’ve spoken to hundreds of entrepreneurs, marketing experts, analysts, consultants and agencies either buying or selling conversion rate optimization services. One of the most common questions I get asked is: “Do you know what others charge for their services?” Clients want to know if I can refer them to a specialist who can help them lift their conversion rates using testing, while consultants and agencies are hoping that, because I seem to be the man in the middle at Convert.com, they can learn how to solve their pricing problem.

The truth of the matter is, if you’re selling a service that is helping conversion rates, something that is viewed as a direct revenue lift in the eyes of the client and you are presenting yourself as the guru or expert in this area, why on earth wouldn’t you take a cut of the winnings and not charge for anything else but these winnings?

There are five ugly truths associated with this way of thinking and they are:

1. Of every 100 tests we see on the Convert Experiments A/B testing platform,

• 14 get a lift of 10% or more,
• 35 get a lift between 1%-10% and
• the rest are not necessarily bringing any lift, but provide insights and learnings

2. The volume of the client revenue is usually not attractive to take a cut of the revenue or lift.

3. It can often take a lot of time to analyze the customer segments and problems before testing can even begin.

4. The bottleneck in many implementations is not in fact the agency, but the client themselves with internal policies and roadblocks. Ever heard of the HIPPO (highest paid person’s opinion)? How about  IT departments (also known as BPU- Business Prevention Units) who want their say in the conversion process. This may all lead to delays in launching a testing and optimization project.

5. The baseline measurement is hard to establish due to inaccurate historical data.

Frankly, I can think of a lot more than five, but you do see where I’m going with this.
And so it seemingly appears, in the eyes of a conversion services business, that taking a cut of the lift is the perfect business-model for growth. And there are some businesses who actually only only charge on a pay-per-lift or pay-per-conversion rate increase. But most agencies and experts with plans to extend their product offering from SEO and PPC to Conversion Rate Optimization (CRO) are starting to realize that this model only works if you have full control over the the entire execution of the project.
Taking that into account, we can come up with several options in terms of billing. Some of which are:

• Pay-per-test
• Pay-per-hour (with fix hours)
• Pay-per-month
• Pay-with-equity

Once you’ve found the right pricing strategy or model that works well for both your business and your clients’, it’s time to start thinking about setting expectations and managing the relationship.

More suggestions for newbie agencies in conversion space

Here’s a common scenario most of us can relate to. You sign a client after they’ve read your amazing testimonials, especially the one with 107% increase that you proudly gained for another client. You showed them that an A/B testing case gained $60M after working with you for 3 months. You’ve almost instantly set a dramatic tone to the project and have set sky-high expectations that you may not necessarily be able to deliver. You’ve almost set your relationship (and project) up for failure before you even start.
What you want to do is set and manage expectations with a balance of past achievements and realistic goals. Be as transparent as you possibly can and share these stats prior to signing the contract. Share the big idea behind Conversion Rate Optimization (CRO) and prepare them for it. More importantly, find your leader in their organisation. Find that internal champion who will take on the HIPPO and the IT department. And finally, start thinking of yourself as an advisor. You are there to help them discover what their web visitors prefer so they are more likely to take the action that drives the business forward.

These actions can be micro-conversions like extra pageviews, downloading whitepapers, reading a guest blog (yep, sorry you’re in my funnel now!). Other common micro-conversions include adding something to the shopping cart, signing up for a trial, making a call or viewing a video, buying an ebook, product or subscribing to your service. Gaining insight from these learnings will help the company grow. Even though we might get it wrong on our tests, the company is learning more about the behaviors and desires of their online visitors. And that’s where some of the real value of testing comes in. Maybe it’s time we stopped thinking of them as failed tests and started thinking of them as research, insight or knowledge.

When talking to CRO experts, the most common project time breakdown I hear is:

• 60% of the total project time goes to managing the project and navigating client internal politics
• 20% of the time is focused on understanding the problems on a page and getting insights about the visitor behavior
• 20% is for designing, developing, testing and reporting.

Understanding this gives a clear indication that taking a cut on a lift basis only works when the numbers are large enough or the project runs a long period of time. When spending more than two thirds of the time analyzing the client’s analytics, usability studies, customer interviews and surveys and then the same time navigating the clients IT department in getting codes installed, DNS redirection and avoiding HIPPO sensitive pages, it only makes more sense to add CRO as a long-term strategy to the marketing department as opposed to an instant fix for a revenue issue.

The same goes for pricing strategies. If this is the only test you’re launching, make sure you are getting paid for all the research and project management since most of that work comes with the first set of tests. Getting a client on board and in full “test mode” is the most expensive part of the process so make sure you either know the CLV (Customer Lifetime Value) well, or just get started by charging an hourly rate (or some other variation of an onboarding cost) in those first months to offset your costs.

I can only hope you will be fair with setting the expectations for your clients before you kick off projects with them. We do not want Conversion Rate Optimization to become the next SEO Wild West, do we?

On a final note, I’m thrilled to have had the opportunity to speak at the ConversionConference (Ft. Lauderdale, October 9-10, 2012) on the topic of Segmented Testing: Measuring the Gains of Personalized Content where I shared tips and tricks to improve conversions by finding hidden gems in your analytics.