Online marketing is a complex and competitive landscape. Gone are the opportunities to easily drive quality free traffic or to buy traffic for nickels and dimes and monetize it for dollars. It is still possible to make a healthy return on your online marketing spend, but it requires a much more precise and disciplined approach.

In the book The Smarter Startup, I described a three-step optimization model for potentially driving considerably higher returns on your online marketing ad spend. By paying attention to a few important details, it is possible to improve your ad spend returns by 500 percent, compared to what many small business and startups are doing currently. To demonstrate how you can do so, let’s walk through each of the steps:

Step 1: Traffic Optimization
Acquiring traffic is where it all begins. Are you doing it effectively? As described in my recent article about inbound and outbound marketing, "What Online Marketing Strategy is Right for You?" the number of online marketing channels has proliferated in the last few years, but not all of them apply to your business. Every business needs to define its online marketing strategy as fundamentally about convenience and price (outbound) or authority and expertise (inbound) and choose the right channels accordingly. Applying the wrong channels for your business model may work in certain situations, but will eventually lead to frustration and difficulty achieving positive returns.

Assuming you’ve selected the proper channels, you also need to take the time to optimize the use of those channels. Is your message resonating? Are you getting the click-through rates you need? If not, try different versions of your ads until you find a winning combination. Try different messaging, images (if applicable), and targeting (keywords, devices, demographics). Cull whatever isn’t working as you add new testing scenarios and you’ll eventually realize significant improvements. It's not uncommon, in fact, to double your performance with various marketing channels after spending some time to optimize.

Step 2: Conversion Optimization
Once the traffic arrives, what are you doing with it? Hopefully, you’re sending it to a landing page designed to maximize engagement, rather than to a generic home page. Most sites can achieve 30 percent to 50 percent improvements in conversion rates by systematically testing different versions of landing and checkout pages (A/B testing). But if you’ve not spent any time and are not following the basic best practices already, it is entirely possible you could double your results (or more) here.

When dealing with landing pages, the basic goals are to (a) sell your product or service and (b) remove anything that could distract or deter visitors from filling out your signup form or buying your product. Remove the navigation and ancillary sidebar. Then, provide sufficient in-line information and instruction so the visitor doesn’t need to seek it out. Think in terms of trying to guide kindergarteners on a straight line from point A to point B and you have the basic idea: remove all distractions and tell them clearly what you want them to do.

If you want the user to fill out a contact form, for instance, make the form as simple as possible and don’t ask for any unnecessary of overbearing information. If it’s a purchase decision, give as few options as possible to choose from. And once customers leave the landing page and continue on through a conversion sequence, apply the same logic, keeping users focused and driving them toward the goal as quickly and simply as possible. My column "4 Ways to Turn Visitors into Buyers Online" provides a more in-depth look at conversion optimization.

Step 3: Customer Retention
It continues to amaze me how many Web-based businesses make an online sale and consider the relationship with that customer to be over. The beautiful thing about converting an existing lead or previous customer is that you’ve already spent the money to acquire this prospect and if you’re able to convert them, the profit margins are significantly higher than having to acquire another 50 or 100 leads (assuming your conversion rate is 1 to 2 percent).

Assuming you are a typical business--that is, you have 30 percent net profits and spend the same amount on marketing and customer acquisition costs--the net profit potential of an existing customer is roughly double that of a new customer. If you are able to convince roughly half of your existing customers to buy again, then you’ve effectively doubled your net profits here again.

The Compound Effect
When you take these steps in aggregate, they amplify one another. Let’s say you started by spending $100 to acquire 100 customers and your earnings are $100 from that 100 customers, meaning you’re break-even to start. With traffic optimization, you were able to double your effectiveness, which means you’re now making $200 from the same $100 you spent. And from conversion optimization, let’s assume you achieved 50 percent improvements again, which compounds your results to $300. Finally, if you convinced one half of your customers to buy from you, either by nurturing non-converted leads or achieving a repeat customer, let's say you doubled the output once again, bringing it to $600. There you have it: the compound effect of efforts to improve traffic quality, conversion rates, and customer nurturing/retention.

Of course, results vary based on a myriad of factors, including marketing assumptions, scaling of sourcing, and fulfillment costs. And the tree steps described above take time and money that aren’t reflected in my admittedly crude calculations. But this simplified example should give you some sense of what’s possible and why minding the details makes a world of difference with online marketing.