How to Calculate Your Conversion Rate
When looking at managing the return on investment (ROI) or performance of a website, setting up conversion goals is one of the simplest and best ways to measure results. Simple conversion goals can be set up using a tool such as Google Analytics. A "conversion" can be measured each time a website visitor takes an action on your website.
The Purpose of Setting Up a Conversion
The purpose of setting up a conversion is to track unique events or thresholds that set a benchmark for your website's performance. Ideally, these conversions should be a measure of how well your bottom line is performing. For example, if a website had 100 conversions in March, the webmaster or marketing person would expect to have greater than 100 conversions in April.
If at any time you see conversions begin to drop, it is a trigger that something may be wrong with the website's message, navigability, user experience, or external influencers such as a dip in marketing or drop in search engine rankings.
A "conversion" can be identified by a number of different things based on what is important to each marketing team or webmaster. It all depends on the specific goals of the website. A conversion can include events, such as a visitor filling out a lead capture form, a purchase, or a metric such as when a visitor's time on site reaches a certain number of minutes or a visitor views a certain number of pages.
Or, a website that sells women's clothing would likely measure its main conversion points as sales, or the number of times a person checked out. By setting a conversion goal to count each time a person reaches the URL for the checkout page, marketers can track their overall volume of sales month over month or year over year to ensure steady growth.
Conversion Analysis as a Marketing Tool
This also gives marketers the opportunity to look back at the batch of conversions and follow the funnel in reverse. Marketers can see how people who converted reached the final URL that showed they made a sale. This gives them the ability to determine which avenues of marketing are driving the most conversions, or sales, and allows them to put more funds behind what is working and taper off campaigns that are not working.
A tag can also be added to the conversion pixel to track the amount of each sale. For example, one conversion, or sale, can be measured at $30 or $3,000. By tagging conversions to show the actual amount, it gives marketers more information about which visitors are making high-volume purchases and what their site behavior and referral source were prior to making a large purchase. If a website isn't focused on sales—for example, the website of a popular blogger or news site—conversions are still essential to benchmark results.
For example, a blogger or news site can set conversions to know how many people viewed over four pages of their website or spent more than five minutes on the site—a sign of engagement that they can share with potential advertisers. Overall, a conversion can be set to measure almost any marketing goal or objective. It is up to the marketer to ensure conversion goals as a holistic part of a digital marketing plan.
Example of a Conversion Rate
If this is your first project on conversion optimization, the formulas might seem a bit daunting. But, it helps to start with the basic conversion rate equation which is:
Conversion Rate = the Total number of conversions / Total number of sessions.
For example, in a month, if your site reaches a total of 100,000 sessions and registers a total of 10,000 orders, your conversion rate is:
10,000/100,000 = 10 percent
Let's look at a retail example. Company XYZ, which specializes in selling products at its brick-and-mortar store, wants to launch an online campaign. The store nets $75 of profit for each unit sold. Let's see how company XYZ got a net profit of $60,000.
In planning the campaign, the marketing team makes the following assumptions:
- The team will drive 100,000 visitors to the landing page.
- The estimated landing page conversion rate is 1 percent.
The initial campaign numbers are as follows:
Number of orders = Number of visitors x Conversion rate
Number of orders = 100,000 x 1 percent = 1,000 orders
Gross Profit = 1,000 x $75 = $75,000
Cost of the campaign = $15,000
Net Profit = $60,000
Setting Up a Conversion Rate for Your Site
You want to start by selecting your conversion optimization data-gathering tools of choice and installing them on your website.
There are many analytics tools out there, and you’ll have to decide which ones you like. The minimum of what you need at this stage is:
- A basic user analytics tool like Google Analytics
- A conversion analytics tool like KISSMetrics or Mixpanel
- User interaction software (i.e., heatmaps) like CrazyEgg
After you’ve installed them, take a little break and let them run for a few days to collect data. Having too much data is a much better problem than having insufficient data. It’s better to start with a little extra and strip away tools if you decide they are redundant or unnecessary in the future.
Analyzing Your Page
You can't just let things be. You have to track the plan you implemented. Start by looking at the page you set up in all your individual tools. From your user analytics tools, pay special attention to metrics like:
- Average time on page
- Bounce rate (hard and soft)
- Conversion rate (at whatever stage in the funnel you’re at)
Dig into each of these metrics because not all conversions are created equally. For example, you may see that you get a lower email signup rate from search engine visitors, but they purchase more from you later on. Your goal is to identify the most valuable conversions and optimize those.