The Conversion Rate: What Is It & How Do You Calculate It?
Discover how conversion rate is an important metric that needs to be defined, understood, measured, and improved.
Conversion rate is one of the most common metrics used by marketers, sales folks, and business professionals.
It is discussed often and taken on the surface as?an important medic or key performance (KPI) for most businesses.
"A website without conversion rate optimization is like a car with no wheels — it will take you nowhere"
I’m going to tell you what conversion rate is, how to calculate it, why that’s important, and ways to improve it.
The conversion rate is the percentage of people who make the desired action on your website or app. For example, if 25% of people who visit your site make a purchase, this would be a conversion rate of 25%.
There are multiple ways to calculate conversion rates. One of the most common is called cohort analysis. This is where you take a random sample of people who have visited your site at least once and look at how many of them purchased after they left your site.
The other method is called basket analysis which looks at all visitors who have completed an action on your site (for example: make a purchase) and then looks at how many of them did so within a specific time frame (for example: within 30 days)
Conversion Rate: What Is It?
Google?provides one of the more concise definitions of conversion rate:
"A conversion rate is calculated by dividing the number of conversions by the number of ad interactions that can be tracked to a conversion during the same time frame"
Now, let’s get into what it all means.
Conversions:
Conversion is a term that's thrown around a lot, but it doesn't always mean the same thing for different types of businesses.
For e-commerce businesses, a conversion is the completed sale transaction.
For lead-generating websites, it might be someone becoming a lead.
Businesses with page views as their primary source of revenue might define conversions based on the number of times people click on an ad.
And so on. The point is to get clear about what your business' conversion metric looks like so you can measure your progress toward achieving it!
Conversion Rate:
Conversion rate is a huge part of making your business successful. It tells you how many people who landed on your website took an action that you defined as a goal.
Some sources provide benchmarks for specific industries or areas to help you understand a good conversion rate and offer some objectivity.
I’m not telling you to copy your competitors, but I think if you want to value conversion rate, you need internal and external research to validate where you stand and where you want to be.
Match this up with your persona research, target audiences, marketing funnels, and customer journeys. You likely know what you want your site visitors and audience to do.
How many of them do you want to do it??
How big is the universe of your target audience??
What is realistic regarding the number of total visitors you think you can get?
Find answers to these questions along with mapping out your conversion goals and conversion rate goals.
Conversion Rate Calculation: How Do You Do It?
To calculate your conversion rate, you’ll need to first identify your website visitors.
This can be done by looking at Google Analytics, or by using a service like Google Analytics for Email or Google Analytics for Apps.
Once you have the number of visits, you can calculate conversions by dividing the number of conversions (clicks) by the number of visits.
The formula to calculate the conversion rate is straightforward:
Conversions / Visits* = Conversion Rate
*I have to include an asterisk, though, as some definitions might not be as straightforward.
You could also call these “clicks” or “sessions” or look at them more granularly.
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My definition here can be adapted based on the language and definitions used by your analytics platform and your other KPIs.
An example in calculating conversion rate for my site (a marketing agency providing services to clients) with the inputs and calculation:
Conversion rate calculation is crucial for my business. Why should I be able to calculate it?
The first thing to consider is where you measure and track your conversion rate.
Google Analytics,
If you're relying on Google Analytics (GA), you'll want to ensure you have your "Goals" set up properly and test them. Conversions are reported based on the goals you configure.
Out of the box, Google has no context as to what a conversion is for you and no ability to calculate a conversion rate off of it.
If you use GA, dive into conversion goal configuration and testing to ensure things are in a good place before you trust the metrics you see (if you inherited the setup) or move forward with any measurement and improvement plan.
In addition, you can segment your data at the levels you want with examples such as:
"Calculating conversion rates and having the data is one thing; using it to make improvements is where the real work starts"
Improving Conversion Rates :
When you're trying to improve your website, it's important to look at several aspects of your business.
The first is traffic sources.
This includes advertising, referrals, and any awareness activities and campaigns you have that generate traffic.
The second area consists of what influences the traffic that has already arrived at the site – things like UX/UI evaluation, review of messaging, calls to action, and ways that users navigate through and engage with the site.
Traffic Sources Optimization:
You can look at targeting, ad creative, and keywords you’re organically ranking for when it comes to traffic.
There are a variety of optimization and refinement tactics to shift your focus to higher quality traffic and aim to increase conversion rate by getting more qualified visitors from external sources that you influence.
Beware, though, that you need to have a good idea of your customer journey and not knock out traffic that is awareness focused or at the top of the funnel (e.g., traffic tied to thought leadership).
Increasing the conversion rate is important, but make sure you segment well enough to not inadvertently stop targeting the top of the funnel, awareness-level visitors, and sources.
Conversion Rate Optimization :
Now, onto the primary part : looking inward at your traffic.
That is where most people start digging into CRO tactics. Web analytics can help you see where people exit, bounce, and stop short of getting to your conversion actions.
Beyond that, the heat mapping and CRO tools will give you insights into UX and UI issues and how people will engage with your site versus how you intended to your design.
By focusing on CRO and putting a strategy into place, you can evaluate everything from site speed to content, messaging, and UI.
Summary :
When it comes to conversion rate, the most important thing to understand is that it’s not one specific metric.
Instead, the conversion rate is best thought of as a series of metrics:
1. Number of conversions per period (e.g., daily)
2. Percentage of visitors who convert (i.e., have an action that you want them to take)
3. Percentage of visitors who complete their desired action (i.e., complete the purchase or download your product)
4. The Total number of a conversions overtime period.