Discover why conversion rate is a crucial metric that necessitates a precise definition, comprehensive understanding, accurate measurement, and strategic improvement plans.
Conversion rate is one of the most frequently used metrics by marketers, sales teams, and business professionals. It is widely discussed and recognized as a KPI for most businesses. However, it can be misapplied, misunderstood, or not established properly as a critical metric. Therefore, it’s important to periodically revisit the concepts of conversions, conversion rates, and the appropriate use of this metric.
For any new initiative, having a well-defined and thoroughly understood metric is crucial before positioning it as a critical KPI.
In this guide, I’ll discuss conversion rates, how to calculate them, why they’re important, and ways to improve them.
What Is Conversion Rate?
Google provides one of the better definitions of conversion rate:
“Conversion rates are always calculated by taking the number of conversions and dividing it with the total ad interactions that led to a conversion during the exact same time period.”
Conversions
Unlike some business and marketing metrics, knowing conversion rates requires some self-definition. It starts with defining a conversion, which can vary significantly across different brands and organizations.
There can be more than one type of conversion. It could be a goal integrated into a marketing funnel cu, a customer journey, or a crucial financial metric your business relies on.
Step one is to define what a conversion is for you.
One standard definition relates to someone becoming a lead for a business that generates leads through its website. For ecommerce businesses, a conversion is typically a completed sale transaction.
Other standard definitions include specific engagement metrics for businesses that rely on ad revenue gained by page views. Secondary types of conversions include events, engagements, and other actions like email signups that support funnels, customer journeys, and overall sales processes.
Conversion Rate
The conversion rate is a percentage.
In high-level terms, it tells you about the percentage of visitors to your site who took the conversion goal action you defined.
Some sources provide milestones for specific industries or areas to help you understand a reasonable conversion rate, offering some objectivity.
While I’m not suggesting you copy your competitors, valuing your conversion rate requires internal and external research to validate your position and goals.
Align this with your persona research, target audiences, marketing funnels, and customer journeys. You mostly know what you want your site visitors and audience to do.
How many of them do you want to do? How big is your targeted audience? What is realistic regarding the number visitors you can get?
Find answers to these questions and map your conversion and conversion rate goals.
How Do You Calculate the Conversion Rate?
Formula
The formula is as follows:
Conversions / Visits = Conversion Rate
However, you might need to adapt the term “visits” to suit the language and definitions used by your analytics platform and other KPIs. This could mean using “clicks,” “sessions,” or a more granular metric.
For example, to calculate the conversion rate for my site with the following inputs and calculations.
Getting It Right
Remember, you custom-define conversions. They range from common goals like lead form submissions to more secondary or obscure actions.
This flexibility allows you to define conversions based on what is most relevant to your business. You can see it as clicks to a website from a channel or ad campaign and get granular with data segmentation, source and channel filtering, and even the definitions themselves.
This customization becomes especially important if you track specific actions leading up to a conversion goal and determine how granular you want to be.
Ensure that your definitions of conversions and total audience (clicks, visits, or another metric) are mapped out meaningfully and consistently.
Why Do I Need To Be Able To Calculate Conversion Rate?
Measuring and Tracking Conversion Rate
First, where do you calculate and track conversion rates? You can use GA, and other analytics suites, or any data you manually calculate.
Google Analytics
If you rely on GA, you’ll want to ensure your “Goals” are correctly set up and tested. Conversions are based on the goals you configure. Google has no context about what a conversion is for you and cannot calculate a conversion rate without this setup.
To use GA effectively, dive into conversion goal configuration and testing to ensure accuracy before trusting the metrics or moving forward with any measurement and improvement plan.
Tracking and Measurement
Proper tracking and measurement are critical. Ensure your tech stack and tools can accurately track visits, conversions, and the conversion rate in alignment with your definitions and goals.
Getting this right is crucial, whether using Google Analytics or third-party reporting tools.
Segmentation & Filtering
With proper tracking, you can segment and filter your data in various ways.
There are many more segments and different ways to filter and analyze conversions and conversion rate reporting. Calculating the conversion rate and delving into detailed segments of traffic and your audience helps you identify areas for improvement.
What Is a Good Conversion Rate?
Calculating conversion rates and the data is another thing; using it to do improvements is where the real work starts.
Improving Conversion Rates
You can look for improvement in two major areas, and I strongly recommend evaluating both.
1. Traffic Sources Optimization
One area is the sources of traffic and the have influences that drive visitors to your site. This includes advertising, referrals, awareness activities, and traffic-generating campaigns.
For the traffic you’re sending to the website, you can see at targeting, ad creative, and the keywords you’re organically ranking for. These elements shape the first impression and directly funnel traffic into the site. There are various optimization and refinement tactics to shift your focus to higher-quality traffic, aiming to increase the conversion rate by attracting more qualified visitors from external sources.
Be cautious not to overlook the customer journey and inadvertently exclude awareness-focused traffic at the top of the funnel, such as traffic tied to thought leadership. Increasing the conversion rate is essential, but ensure you segment well enough not to stop targeting top-of-the-funnel, awareness-level visitors and sources.
2. Conversion Rate Optimization (CRO)
The other area involves what influences the site’s traffic, including UX/UI evaluation, messaging, calls to action, and how users navigate and engage with the site.
Most people start exploring CRO tactics here. Web analytics can help see where people exit, bounce, and stop short of completing conversion actions. Heat mapping and CRO tools also provide insights into UX and UI issues and how users genuinely engage with your site versus your intended design.
By focusing on CRO and implementing a strategy, you can calculate everything from site speed to content, messaging, and UI. This approach helps identify and address the factors hindering conversions.
You should explore traffic source optimization and CRO to improve your conversion rates.
Conclusion
Conversion rate is a valuable marketing metric. Understanding, defining, measuring, and improving it are all crucial for success.
Whether you have a small business or an enterprise-level website, you mostly care about specific conversion goals. To achieve these goals, follow these steps:
- Understand what conversion rate is and why it matters.
- Define what a conversion means for your organization.
- Measure your conversion rate accurately using appropriate tools.
- Improve your conversion rate through targeted strategies.
While increasing traffic is essential, maintaining or improving your conversion rate as traffic grows is even better. Understanding the key factors that influence conversion rates can help you score higher traffic and conversion rates.
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