Don't Be Fooled: Is Sales = Traffic × Conversion × Average Order Value?

-01- A while ago, a cosmetics company owner told me he was going to close up shop because "traffic is too expensive." The cost of "acquiring a customer" has risen from a few yuan in the early days to hundreds or even thousands of yuan now. That's the good scenario. Sometimes, spending tens of thousands or even hundreds of thousands on "traffic" results in almost zero sales. Some companies, following the advice of internet experts, treat "traffic" as a "strategy," first building it up through "buying + fake orders + high Taobao affiliate commissions + low-price promotions." They say that once traffic picks up, the store will take off, and it can even spread virally and quickly cover the entire internet. Experts call this "strategic losses," but while the losses are real, the "strategy" is nowhere to be seen. Now, the owner gets anxious at the mere mention of "strategic losses." Why is "traffic" so highly valued? Because the industry is buzzing with the formula "Sales = Traffic × Conversion × Average Order Value." There's limited room to improve conversion and average order value. Online, it's just tweaking pages, running promotions, cutting prices, offering coupons, bundling gifts, etc. Offline, the tricks are similar, with a few more options like experiences, in-store guides, or giving away eggs for queuing. The only factor that can be significantly improved is traffic. Platforms make their living by selling "traffic," so they constantly beat the drum: "The essence of business is traffic," "The essence of marketing is traffic"... So everyone rushes to find traffic dividends and buy traffic. As a result, traffic naturally becomes more expensive, and the so-called dividends either vanish quickly or turn out to be traps.

-02- "Buying traffic is suicide; not buying traffic is waiting for death." Many companies find themselves in this dead end. There are many similar sayings: "Doing terminals is suicide; not doing terminals is waiting for death," "Doing advertising is suicide; not doing advertising is waiting for death," "Doing promotions is suicide; not doing promotions is waiting for death"... If you're stuck in such a deadlock, you must have a huge misunderstanding about the matter. Traffic is given immense importance and is widely considered the most critical factor affecting sales. After all, "Sales = Traffic × Conversion × Average Order Value." Almost all operations training, especially for e-commerce, starts with this formula. But let me tell you, if you hear someone say this next time, you can curse and walk out, and even throw rotten eggs and tomatoes at them. They're leading you astray. Is this universal formula, often quoted by e-commerce training companies, wrong? Well, it depends on your role. Since the 1990s, traditional enterprises have trained salespeople using formulas like "Sales = Foot Traffic × Conversion Rate × Average Order Value." A store's daily foot traffic is relatively fixed, but you need to use tactics to attract attention and get more people to your display area—that's increasing foot traffic. Once they arrive, you need to grab them—that's conversion rate. And you want them to buy more each time—that's average order value. For B2B salespeople, the training is: "Performance = Number of Customer Visits × Conversion Rate × Average Order Value + Repeat Purchases." Following the same logic as salespeople, since acquiring new customers is costly, "repeat purchases" are emphasized more. Similarly, telemarketing emphasizes: "Performance = Number of Calls × Conversion Rate × Average Order Value," so salespeople are required to make a hundred calls a day. This is the oldest sales logic, even used by telecom fraudsters: "Fraud performance = Number of Calls (or Texts) × Scam Success Rate × Amount per Scam." More sophisticated scams even get people to fall for them repeatedly, knowing that "acquiring new customers is not as good as exploiting existing ones." So, if you're a frontline executor, it's natural to receive such training—it's sales logic that has been around for thousands of years. But if you're an operator, especially a boss, this is leading you to ruin. Because this formula only focuses on the single "transaction" link, ignoring more fundamental marketing factors like "demand," "product," "target audience," "positioning," and "brand." An e-commerce boss said that when he heard this formula in training, he felt something was wrong but couldn't pinpoint it. This is essentially treating the boss like a salesperson, trying to brainwash operators into executing tasks. If you ask someone how to harvest more peaches, and they tell you that the number of peaches harvested = the number of peach trees you can pick from × the number of peaches per tree × the picking rate, it seems perfectly correct but is actually nonsense. Because the more critical questions are: Are those peach trees mine? How do I cultivate them for a good harvest? What's the quality of the peaches? Are they ripe? Do I have the right to enter and pick them? Will I get my legs broken if I steal them?

-03- Platforms emphasize the importance of traffic because they're in the traffic business. The more people chase traffic, the more expensive it becomes, and the more they profit. If businesses also blindly chase it, they're raising someone else's child. Because their business logic is the opposite of the platforms: the more expensive the traffic, the lower their profits. The largest e-commerce platform in China has an annual Gross Merchandise Volume (GMV) of nearly five trillion yuan, but the total profit of the millions of sellers generating that GMV is certainly less than the platform's profit, and might even be negative. Most e-commerce companies I know are losing money or breaking even on major platforms, while the platforms make money from every one of them. Traffic is the platform's core competitiveness, not the supplier's, whether you're a distributor or a brand owner. Why are platforms becoming more profitable while e-commerce has become "the hardest business in the world"? Because you're circling around the platform's core competitiveness, and in the end, you're working for the platform—otherwise, it wouldn't make sense. This year's Singles' Day, the biggest concern wasn't the record sales but whether Taobao's data was fabricated. There was heated discussion in my group about this, but I didn't participate. In my view, data fabrication is bad, but what's more terrifying is if the data isn't fabricated. That means Taobao has absolute control over most suppliers—"When the ruler orders a subject to die, the subject must die." Whatever position they want you in, you have to comply. If they ask you to achieve 30 million, you must achieve 30 million, even if you have to fake it. In such a situation, do you think you can make money? It's impossible, even if you think with your toes. A supplier in the group complained: his Singles' Day sales were 16 million, but there were only two real consumers, with a genuine order rate of just 0.3%. Whether the data is fake or not, some people are happy playing along; it doesn't matter anymore. Traffic is the platform's base. Platforms attract traffic, emphasize its importance, and sell it to you—that's perfectly natural. But as a supplier, where is your base? Without a base, following the platform's traffic and hoping for scraps is nothing but being a wandering bandit.

-04- I've spoken up for distributors before and also pointed out their serious problems: it's not that the enemy is too fierce, but that they're not cunning enough—they've lost their core functions. The only reason a business exists is the customer value it can provide. As a boss or operator, don't plan your company's growth with the vision of a salesperson, and don't be so short-sighted as to be stuck in the outdated sales logic of "Traffic × Conversion × Average Order Value." Remember this formula: Enterprise Performance = (Customer Perceived Value - Customer Usage Cost) × Customer Assets × Relationship Leverage. This is the essential thinking for business owners about survival, growth, and profitability. It covers all aspects of running a business, with "value" at its core: What value do you provide to the market? What user needs do you satisfy? How do you make users perceive your value? How do you deliver this value to users? What makes your value or your way of delivering and communicating value unique? How can you amplify your value? How efficient are you? Based on customers, needs, market opportunities, and your own resources, you can find all possible growth paths—not just traffic. This requires not only a long-term perspective but also professionalism. As Mr. Chen Minying, the proponent of "new business wandering banditism," puts it, "long-termism and professionalism" are precisely the antidote to "banditism."

-05- Some say, "We know we should take a long-term view, but our current situation doesn't allow it. We need to survive; we urgently need growth." This is a kind of corporate naivety, thinking that wherever you focus your attention, you'll reap rewards there. In reality, focusing only on the immediate doesn't guarantee immediate gains. Focusing on short-term interests and achieving short-term interests are two completely different things, and often opposite. If you invest resources in things with no accumulation or unique value, you'll naturally be easily replaced. Where's the short-term benefit? It's just a fantasy of drawing a cake to satisfy hunger. Conversely, if you can find the key tasks you should focus on and approach them with professionalism and a long-term attitude, you might achieve significant results with just a little effort. Brother Damao has been doing frontline e-commerce operations and training for years, dealing with countless e-commerce businesses. He found that profitable merchants generally don't pay much attention to traffic rules, and some don't even understand them well. A mom selling children's clothing started last year and this year reached the top 20 in Taobao's children's clothing category. Her advantages are twofold: she truly understands children's clothing and can analyze three to five points about an ordinary product; and she interacts strongly with her fans, often live-streaming, with strong fan loyalty. A dental materials manufacturer doing foreign trade also became a leader domestically. Their core strategy: based on market demand, they selected only 30 out of their original 230 materials to sell, targeting a niche but strong demand. The biggest feature of this year's Singles' Day was that the top sellers in various categories were mostly traditional old brands. The industry exclaimed, "The regular army has entered the field." Damao calls this "overwhelming force overcomes a hundred techniques." The traffic-driving and conversion tricks of traditional e-commerce are no match for the R&D, product development, and brand building of the regular army. The traffic that millions of traditional e-commerce businesses created together with the platform was easily harvested by brands. Ultimately, users buy unique, high-value products and quality, stable services. How many years you've run your store, how many traffic tricks you know, or whether you're a viral seller—none of that matters to them. Render unto Caesar what is Caesar's, and unto God what is God's—that's the most efficient channel chain state. Brand owners create amazing products that delight consumers and communicate the brand well; distributors select good products based on trends, define cooperation terms with upstream and downstream, and improve delivery and promotion efficiency; platforms have evolved into commercial infrastructure and should handle comprehensive traffic and service work. Once your core function weakens, you'll inevitably be squeezed by other links. "The big store bullies the customer, and the big customer bullies the store" is an eternal truth. Worse, if you don't even know what your core function should be or where your base is, you can only be a "wandering bandit." Either you work for the upstream, the downstream, or the platform. Throughout history, the only fate for wandering bandits is to be wiped out. At any stage of any enterprise, there can only be one or two key marketing actions. A slight touch on them can cause earth-shaking changes.

Source: Lao Miao Marketing Button (ID: yiheyingxiao) Tips will be paid 400-2000 yuan once published.