What Does Conversion Rate Mean?

Quick quiz: Which of the following is the correct definition of “conversion rate”?

A. sales / unique visitors
B. sales / total visits
C. actions / unique visitors (e.g. home page test, conversion goal is not a sale but a reduced bounce rate or a click on the main call to action)
D. sales / number of carts initiated
E. sales / relevant visitors (segmented by geography, campaign, etc)
F. (sales – refunds) / unique visitors

Answer: Any or all of the above may be considered a conversion rate. It truly depends on what you think is the best formula for measuring success. The important thing is that you have your calculation of conversion rate defined within your organization, and be careful when looking to external benchmarks (industry data, competitive data etc) to gauge what your target conversion rate should be. You may be comparing apples to hot dogs.

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11 Responses to “What Does Conversion Rate Mean?”

  1. Amit says:

    What do you think are the main components of ecommerce to which the requirements of a website can be mapped. For e.g. i can map conversion to a requirement which says “One click checkout’ which basically implies that an easy checkout may lead to better conversion.

    What other things like “Conversion” could form the KPIs for ecommerce?

    Thanks.

  2. lloyd says:

    All of those things, yes … but e is probably the most important one i reckon. Not for geographies but campaigns…

  3. Great reminder Linda. We use two different conversion rate formulas in my team to measure different metrics. But your caution on using publicly published information is spot-on.

  4. @Amit, I think you can map most any feature/functionality to a KPI, it might not be a monetary KPI though. For example, cross sells may impact conversion rate, average order value, time on site, pages per visit, items per order, customer satisfaction, etc. Some impact revenue, others impact satisfaction or other site goals.

    • Amit says:

      @Linda…thanks for the response…I actually wanted an insight on what all KPIs do you think are most relevant for an ecommerce website/project. I have a few in my head, but having your opinion would be helpful.

      Thanks.
      Amit

  5. I wrote about a similar issue some time ago.

    The problem I have with conversion rate measurement is that percentage is not really a way to go. In most cases, comparing two different store’s conversion rate (percentages) is impossible. You could improve the conversion rate by actually lowering the income by simply ignoring the revenue streams with low conversions.

    For example, a store could get a really big portion of it’s visitors from social networks and these visitors might not convert very well, but there’s such a big number of them that they bring lots of revenue. If we stop using these social network channels, we would significantly improve the conversion rate (the percentage) while lowering the profits of this store.

    That’s why I believe the goal of conversion rate optimization is revenue and not the *rate*.

  6. Im Lover says:

    Some say industry standard of conversion rate is 1% ( selling information with clickbank). But the conversion rate of cold ppc traffic direct link to sales page is totally different with the ppc traffic going to squeeze page first then following up with prospect to let them viewing the sales letter. A lot of vendor say they can convert 3~5%. Which traffic path do they mean, the first one or the second one?

    When testing the conversion rate of a offer of a new sales letter, different keywords bring in different conversion rate and some keywords even don’t convert at all. How do I calculate the conversion rate of the new product?

    What’s the lowest conversion rate is acceptable to be used to recruit affiliate and JV partner?

    Thanks for your time reviewing my questions and take your precious time to answer them. I really do appreciate for your help.

    • You should be able to answer all of these questions with Google Analytics reports. Pick up Avinash Kaushik’s Web Analytics an Hour a Day for more information on that. You should be tracking each page/offer/landing page separately, then you can segment conversions by keyword and traffic source, and also by custom segments you apply to the data, along with an overall average conversion rate.

      Average conversion rates vary depending on industry, you can participate in Google Analytics Benchmarking program to see your conversions relative to similar sites.

      I don’t know what typical conversion rates individual affiliates are attracted by. You need to have a really good product and affiliate commissions as well as conversion rate – it’s a mix of things.

      Thanks,

      Linda

  7. Tay says:

    Thanks Linda, I found this very helpful. I work day and night to improve my conversion rate.

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