What is a conversion?
Conversion is transforming X into Y. A website visitor into a buyer or a lead. And possibly many other things.
When somebody buys from us we call that a conversion; we have converted a visitor into a customer (that’s conversion for all ecommerce websites). Software as a service companies might try to convert a visitor into a free trial user. That’s conversion too. For some companies, such as ad agencies or construction companies, lead generation is the most important conversion that can be delivered by the website. So they want to convert a visitor into prospect.
So when somebody says ‘my conversion rate is 5%’, we don’t know what he’s measuring. Visit to lead? Visit to purchase? Free trial user into a paid customer? All of these would be acts of conversion.
Every business needs to figure out what’s the main conversion they want to measure. And to understand the effectiveness of the website, we measure its conversion rate. The conversion rate is the number of conversions divided by the number of visitors (on a given time period) * 100.
So if you had 5000 visitors, and 20 of them took action (e.g. bought something), your conversion rate would be:
20 / 5000 * 100 = 0.4%
Conversion rate ≠ revenue
In the end it’s about revenue. Your conversion rate can go down while revenue goes up at the same time. It’s not rare to see a/b tests on ecommerce sites where variation A has lower conversion rate than variation B, but brings in more revenue. And that’s what we want.
What does conversion rate depend on?
Conversion rates depend on so many factors.
- Relevancy of the offer / traffic source. When you offer shampoo to bald people, you ain’t gonna sell much. If you offer allergy relief to people with allergies, you’ll have much better odds.
- Relationship with the visitor. If the visitor knows you and trusts you, it’s far easier to sell him. Hence all your content marketing and relationship building efforts are so important for conversions.
- Business vertical. We need some products more often than others.
- Cost of the product. You’re going to have a higher conversion rate when selling $2 “Wash&go” shampoo compared to selling $229,825 Ferrari 458. Products that cost more money will generally have a lower conversion rate. If what you sell is free – like you provide a free pdf report in exchange for their email address – you can potentially get much higher conversion rates.
- Cost / value ratio. The perceived value of your offer compared to the cost (even when its a free offer – giving you their email is also a transaction).
- Copywriting. Words matter, a lot. What you say and how you say it can make all the difference.
- Design, user experience and usability of the website.
So when we compare 2 ecommerce stores and their conversion rates, it’s not apples to apples comparison really.
Measuring conversion rate: the right way and the wrong way
The wrong way: at the end of the month you divide your total traffic with the number of sales. Any manual measurement is doing it wrong. While you get your “average” conversion rate, that doesn’t tell you much.
The right way: you need to measure conversions with your analytics tools. This enables you to measure performance across segments (e.g. new vs returning visitors), traffic sources, devices, countries and so on. You can make observations and smart conclusions for optimizing your site.
What’s a good conversion rate? What’s the number I should strive for?
The only correct answer is “better than what you had last month”. No joke. A reasonable goal is to figure out how you can improve your conversion rate by 5-10% (relative increase, not absolute) monthly.
Sure, there are “averages”, but they’re not really useful. It’s way too contextual. Your best benchmark is yourself.