The calculation is simple:
The percentage of successes from all possibilities.
The above definition for conversion rate may sound vague, so here are some examples
If your website has 1,0000 people visiting it in a month and 10 people purchase your product, you have a 1% conversion rate. One thousand people are the possibilities and 10 people are the successes.
Another example: You ask 10 people to hire you to teach them how to balance a ball on their head. Two people hire you. You converted 20% of the people you asked, so your conversion rate is 20%.
How to Use Conversion Rate in Marketing
Conversion rate helps you understand how effective your marketing is, especially if you’re spending money on it.
Let’s say you spend $1,000 on advertising. 20,000 people see your ad and you sell 200 products – the conversion rate is 1%. This means that you spent $1,000 for 200 orders. Is that a good use of $1,000?
How to Know What A “Good” Conversion Rate Is?
Ask 100 people if 1% is a good conversion rate and you’ll hear a lot of yes answers and a lot of no answers. Why?
One percent is a good conversion when the total conversion value exceeds the spend on it. Let’s take the example of 200 purchases for the $1,000 in ad spend above.
If each item sold cost $2, then the total conversion value is $400. The ad spend far exceeds the revenue, which means 1% is not providing a positive Return on Ad Spend (ROAS).
Now, what if each item sold costs $299, then the total conversion value is $59,800. This means there is a return of investment of $1,000, which is 5880%.
The second situation is obviously more favorable than the first, even though the conversion rate for both is 1%.
What to Do About Unknown Conversion Value
Identifying a good conversion rate when you know the value of the conversion is easy, but when you don’t know the value, it gets a bit more difficult.
One solution might be to compare your rate to the average of your industry. For instance, a conversion rate of 1% for the clothing industry may not have as good as it would be for the technology industry. The reason is the average cost of clothes is as much as technology products.
Notice the higher averages for Arts and Crafts, Health & Wellbeing, and Pet Care. One reason for this might be that the products cost less and they are needed on a regular basis – people need to buy them more than once, and sometimes they urgently need these products.
How to Use Conversion Rate by Industry
You can use the information above in a few ways. If you’re looking to start a business in a particular industry, you can look at these rates as a sign that more people buy products in them.
Consider also using this standard to understand what you’re doing right or wrong in your marketing. For instance, if you set up an affiliate website for pet care and your conversion rate isn’t close to 3.28%, there’s a reason for it, and you need to figure it out to succeed in that industry.
A Simple Way to Calculate Conversion Rate
You do not have to be a math genius to calculate conversion rates. All you have to know is the following:
- How many people saw your ad, visited your website, or landing on your website page
- The number of people who converted – completed an action (purchase, completed a form, clicked a button, etc.)
Divide the number of people who saw the ad, visited the site, or page, etc. by the number of people who completed the desired action.
Breaking Your Funnel Into Micro-Conversions
As a conversion rate optimization agency, we recommend that you break up your overall conversion rate into micro-conversions. This means breaking down each step in the checkout process into smaller steps.
For e-commerce, someone might take the following actions:
- Visit the home page
- Click on a “Shop All” button
- Click on a “View Item” button to see a specific product in more detail
- Click the “Add to Cart” button
- Complete the “Shipping Address” form
- Add payment method details
- Confirm checkout
In this scenario you want to calculate 7 mini-conversions. What % of people click the Shop All button, divided by the # of people who visited your homepage? This is the first of many micro-conversions.
Here’s an example chart:
We hope you’ve found this information helpful. How are you measure success on your website? Tell us in the comments below!
A website without conversion rate optimization is like a car with no wheels — it will take you nowhere.
– Jeremy Abel