The formula
A shop's revenue for a period is the product of four numbers:
Revenue = visitors × conversion to purchase × average order value × purchase frequency
For an online shop, visitors are site sessions; for a physical one, people who walked in. Conversion is the share who bought. Frequency is easiest to count for repeat customers: how many times a year one buyer comes back.
The formula is useful because it multiplies rather than adds. Raise each of the four by 10% and revenue grows not by 40% but by 46%: 1.1 × 1.1 × 1.1 × 1.1 = 1.46. The reverse also holds: a quarter's drop in one multiplier is not made up for even if traffic grew.
Where each number comes from
Visitors. For a site, analytics. For a shop, a door counter. Without one, a week of counting by hand on different days gives a rough but useful estimate. Without this number you can't tell "people stopped coming" from "people come but don't buy", and those are two different problems with different fixes.
Conversion. Number of receipts divided by number of visitors for the same period.
Average order value. Revenue divided by number of receipts. The till software calculates it. But average order is easy to misread — there is a separate article on that: when a rising average order is bad news.
Frequency. The hardest number, because it requires recognising the buyer: a loyalty card, a phone number, an account. Without a customer database this multiplier is invisible. For a business that lives on repeat customers, that alone is a reason to start collecting one.
What to compare with
The first instinct is to find "the conversion norm for a clothing shop" and compare. Such figures exist online, but they come from other cities, other ranges and other counting methods. Comparing your numbers with them gives an answer that says nothing.
Compare with yourself: the same month last year, or the average of the last three months. A four-row table with two columns, "then" and "now", shows in a minute which multiplier sagged.
An illustrative example. A shop's revenue fell by 20%. Traffic over the same period barely changed, the average order even rose slightly, but conversion fell from 25% to 19%. Conclusion: people come in but buy less often. Advertising won't help here — it will bring more people who leave without buying in the same way. Look at the range, prices, staff, and whether popular sizes are in stock.
Which multiplier to move first
The general rule: move the one that fell most against your own past. If all fell equally, look at the cost of change.
- Traffic is usually the most expensive: every new visitor costs advertising money every month.
- Conversion can often be raised without a budget: popular items in stock, visible prices, staff training; for a site, speed and an easy checkout.
- Average order moves with add-on products, bundles, a free-delivery threshold.
- Frequency moves with reminders, a loyalty programme, a range people come back for.
If traffic really did fall, first check what a customer costs in each channel — the calculation is in the article on cost per customer.
Our position
Before raising the advertising budget, break revenue into its multipliers. Advertising treats only one of the four, and if another one sagged, the extra budget brings people who leave without buying just the same.
The position does not hold for a new business with neither a previous year nor repeat customers. There traffic really is the first multiplier, because without visitors there is nothing to calculate the other three from.