Today there are many metrics by which you can assess whether the site is healthy or sick. This is traffic, views per page, conversion rates, etc.
But what if all these parameters are good and stable, but the profit from the Internet business, however, is steadily declining?
Below I will share with you one very interesting case that I had the opportunity to analyze. This is a case about a successful online business which has been selling online education services for many years. However, something happened and the margin of its sales has fallen by almost 6 times in one year!
To analyze the situation, I initially uploaded all the statistics from Google Analytics in Excel. Then I brought all the metrics into the proper form, calculated additional metrics, and created the necessary summary tables.
Already at the analysis stage, I understood the reason. But to be sure, I decided to visualize the data. I wanted to make it as beautiful and interactive as possible, so I chose Flourish Studio to build charts and graphs.
The Power of Flourish and Data Science
So, let’s start with this interesting chart.
What do you see here? At first glance, the company’s business is healthy: as marketing spending grows, so does the number of active customers. Costs (COGS) also grow a little, but not critically, especially since without their rise often no growth is possible in principle.
However, the yellow ROMI line is treacherously falling. And it falls quite significantly – almost 6 times (this is a graph with a logarithmic scale). So what is the reason?
The first reason is the company’s falling market share, as the following graph clearly shows.
The decline in the company’s share is due to the sharply increased competition in the online education market. In recent years, this is a hot industry, where many corporations with huge budgets and influence have rushed.
Nevertheless, despite the apparent inability to compete with the giants, our online company is able to stay afloat and attract customers with modest, but still positive indicators.
And if you look at the efficiency of dealing with traffic, everything is good here, too. As site traffic grows, the number of active clients grows as well.
There is of course some lag in MAU from traffic over time. But it is quite normal in a market with growing competition.
Let’s now look at the key indicators of the site. Could there be something wrong with it?
In the diagrams above we can see that the website is fine. All indicators are normal and even improving slightly.
However, something in this data is alarming – the drop in conversion rates. That is, the percentage of registered and paying customers per thousand visitors.
We can see that site traffic is increasing, but the conversion rate is decreasing. Moreover, since April the number of registered but inactive users has increased sharply. They do not bring money to the company.
Nevertheless, the company’s management assures that it has been working on this problem for a long time. They even have several employees on staff who are engaged in calling and returning inactive customers.
And if we look at this nice chart below, we can see that this work is really being done.
However, digging deeper and analyzing the number of reviews and their tone, I found that they are becoming increasingly rare and more often negative.
It is easy to see that a sharp surge of negative feedback about the company’s services came in March. And this time coincides with when the trend of inactive, non-paying customers began to grow.
The 1.5-fold drop in the number of reviews, combined with this increase in negativity, has obviously damaged the company’s reputation. And this is the second key reason for the drop of ROMI.
Of course, reviews have a strong influence on the profitability of the business, but I’m also sure that there are other reasons behind it. And they are most likely in the area of marketing.
The ad spending chart is almost identical to the traffic chart. This is an excellent correlation. No wonder the business owner didn’t notice the problem of ROMI dropping, because these are 2 key metrics and there’s nothing wrong with them.
But let’s dive deep into the marketing statistics and see how the funds were spent.
The chart above is interactive. You can select different parameters in the filter window and compare them with each other.
The first Ad Clicks metric shows that our website is steadily losing clicks on its ads. But why? As we saw above site traffic is growing, what’s the catch?
The thing is that the traffic figure takes into account both paid traffic and free SEO traffic. And while the number of advertising clicks is falling, it is obvious that the share of SEO traffic is growing. And as you know – this traffic is less hot and brings fewer leads per thousand visitors (the probable reason for the decrease in conversion).
The next parameter on the chart is ARPPU decreasing even more clearly. What is it related to? The answer to this question will be given by the analysis of the following indicators.
First is the cost per click (CPC). Over the past year in the niche of online education, it has increased by 2 times (!) from 7.22 to 14.12. It means that we have to spend 2 times more money to attract 1 customer today.
Since CPM almost did not increase, we can conclude that the company’s marketers compensated the sharp increase in cost per click by increasing the number of impressions. However, due to the fact that these are cheaper channels, the effectiveness of interaction with the audience has dropped significantly.
And this is confirmed by the sharp drop in CTR. And it was falling even faster than the growth of advertising costs, which may indicate that advertisements no longer look as attractive to the audience as before. Plus, it is possible that people simply do not click on ads after reading a lot of negative reviews.
All this undoubtedly negatively affects the sales margin of the business, including such indicators as ARPPU, RPM , ROMI. They are steadily declining.
So, ineffective marketing campaigns are another reason why business profits are falling. Combined with a sharp increase in negative feedback, insufficient work with them (net promoting score) and falling market share, all these factors have had a devastating effect on business margins (it fell from 94% to 16%).
What can a business owner do in this situation? There are several different vectors, including cost optimization and the launch of new products. But in any case, if he/she wants to save own business they would work on its reputation. And do not forget that a business with a 94% margin is not an eternal story.