The word “conversion” pops up everywhere in the online marketing world: “the customer has converted”, “the conversion rate is too low…”, “we managed to boost the conversion…”, “how to improve the conversion…”. But what does it really mean? Many beginners and even seasoned salespeople, entrepreneurs in the e-commerce industry misuse this metric or don’t grasp its core, either overrating or underrating its power.
Conversion is a key concept that has different types and applications. It requires careful analysis and interpretation of the data, as well as smart use of the results. This topic has been on our radar for a long time and we will dive into it today.
What Does Conversion Mean?
If you browse through blogs and forums related to online marketing, you will often encounter the term “conversion” as a desired (or targeted within a specific marketing strategy) action performed by a customer: a purchase, a service request, a form submission, a website registration, an app download, a promotional material download, a monthly subscription payment, etc. This is a common way of using the term as a professional jargon — a synonym for the word lead or sale.
However, the original meaning of the term is slightly different. Conversion Rate (CR) is the proportion of visitors who performed the targeted actions. It’s that simple. CR indicates: what percentage of visitors, whether offline or online, placed an order in a shop, restaurant, app, etc. It is calculated using the formula:
Target actions can vary depending on the type of business, goals and strategy. They don’t have to be sales. For example: an ad on Facebook was seen by 350 people: 73 clicked on the link; 24 registered on the service or left a purchase order; 5 eventually subscribed or paid for the delivery order.
In the attraction process, each of the intermediate steps can be considered as a useful action and conversion can be calculated for each of them. What to calculate depends on the specific objectives. In sales, conversion would mean completed deals or purchases. In advertising, the main indicator is clicks from the ad to the target website. Marketers measure each stage.
What Affects Conversion Rate
Conversion is a dynamic variable that can be changed by increasing the percentage of target actions. There are two types of factors that influence this metric: internal and external.
External factors include search engine optimization and contextual advertising. A smart analysis of keywords, website optimization with the expansion of the semantic core, adding the most relevant keywords (as well as negative keywords, which filter out unwanted visitors) — all this helps to improve the site’s ranking in the search results and boost the conversion rate (the percentage of customers who convert).
This also includes factors that are beyond your control. First, there is the seasonal fluctuation in demand for certain products. You can use the free Google Trends service to analyse seasonality. But you can also maintain a high level of sales by offering seasonal deals, discounts. Second — competitors’ offers. It is important to stand out, to find your niche, to provide additional services.
Another factor that plays a role in the conversion rate is the niche itself. For some niches, such as food delivery, taxi or flower shops, the conversion rate will naturally be high (some services have about 30%): the visitor is hungry, in a hurry or wants to surprise someone, so they quickly choose and order. For other niches, such as household appliances, even 2% is a lot. People tend to browse, compare and shop around. But even in these cases, you can improve your sales performance by using internal factors.
Internal factors include everything that relates to the website’s interface: design, layout, buttons, content (text, images, video), colour scheme, offer. An important factor is code optimization. The website should load fast, run smoothly and not overload the user’s system.
The Benefits of Measuring Conversion Rates
In business, there are many metrics to measure performance. The most common ones are profitability and return on investment (ROI). But they involve complex calculations and can only be done at the end of a certain period. They are not very useful when you want to see the results of your work in real time. That’s where conversion rates come in handy. By knowing the average order value and the cost of acquiring a customer, you can use conversion rates to monitor the effectiveness of your advertising campaigns, the quality of your sales representatives and consultants. You can track this metric online and see how it changes over time. Conversion rates help you to:
Identify the weak spots of your marketing strategy — at what stage of the attraction process (or sales funnel, if you prefer) you lose the most visitors;
See how your innovations affect your promotion and adjust them accordingly to increase your profitability;
Plan ahead — by knowing your conversion rate and cost of acquisition, you can estimate your potential profit;
Conduct tests and spot failed campaigns at an early stage, before they cause significant losses.
Conversion rates are calculated by advertisers, marketers and salespeople alike. For affiliate marketers, this is their bread and butter, the main metric that allows them to quickly assess whether it is worth reselling traffic (arbitrage) in a particular GEO on the offer. But, surprisingly, using the same formula, different experts measure different indicators.
Conversion in Advertising
When it comes to advertising, beginners often mix up conversion rate (CR) with click-through rate (CTR) — the percentage of ad clicks out of the total impressions. This factor is also important. It shows how well the ad is crafted and helps to plan advertising campaigns (if the CTR is high, it is more profitable to pay for impressions rather than clicks, and vice versa).
The formula to calculate the CTR is very simple: divide the number of people who clicked on the banner by the number of users who saw the ad and multiply by 100%.
Unlike CTR, conversion is mainly about value. It shows the proportion of visitors to the website or landing page who performed not just any action, but a target action. This doesn’t have to be a sale. Attracting a target audience is a complex process. It can take up to four stages or touch points from the first encounter to the order — the moment when a person will hand over their money and become a customer. Downloading advertising brochures, price lists, consultations, signing up for newsletters — these are also vital parts of the sales funnel.
Advertisers link conversion to a specific action: registering on the website, subscribing to a newsletter. Affiliate marketers do the same and they get paid for a predefined action (lead). For one-page landings, dedicated to one service or product, it can be a sale.
In advertising, conversion and CTR are connected. A low CTR usually leads to a low CR, which indicates that there are problems at the very beginning of the sales funnel — poorly formulated unique selling proposition (USP), errors in targeting settings, bad design.
Please note! When calculating the conversion rate, we only count visitors who came from ads launched within a specific campaign. We don’t take into account traffic from search engines, blogs and other websites. We count each source separately. This will allow us to discard ineffective sources.
Most ad networks offer a built-in analytics tool to calculate conversions. But for accurate indicators with evaluation by a specific action, it is worth using additional services. First of all, it’s Google Analytics. When advertising through Facebook, it is worth installing Pixel on the website. When analysing complex multi-level advertising campaigns, marketers recommend using third-party tools with advanced capabilities, such as SemRush.
Conversion in Sales
In sales, conversion is used to measure how appealing the offer is to the target audience — potential customers. The difference from advertising is that the calculation takes into account traffic from all sources: search engines, aggregators of goods and services, ads, social media groups, forums, third-party sites where the company is mentioned.
Of course, in sales we look at the ratio of visitors and orders. But it is also useful to calculate the intermediate steps: conversion of registrations, additions to the cart, consultations, requests for a callback. If sales are low, this will help you to pinpoint the weak link that is causing the problem. Here are some examples of common mistakes:
The shop offers the best price on a smartphone with fast delivery and a gift (headset, case). There are many conversions, but no sales. By calculating the conversion rate for each stage, you can see that customers drop out at the consultation stage. The new manager is confused about prices, forgets about gifts or pushes too hard for additional services (from which he gets a commission) — disappointed and annoyed customers go to competitors;
A paid online service asks to link a bank card and fill out a huge form at the registration stage, including the address of residence. It makes sense that users will have to pay anyway and will enter their payment details. But such invasiveness raises suspicion — and rejections. A step-by-step conversion calculation allows you to spot the problem area at an early stage.
Conversion in Marketing
Marketers have the most challenging task when it comes to calculating conversion rates. They have to measure the conversion rate for each advertising campaign, traffic source and stage of the sales funnel. They use the same formula for each specific action.
But this meticulousness pays off and allows them to redirect the advertising budget to the most effective source of traffic, optimise the website performance and increase the profitability of the business significantly. The marketer must know what stage fails, which sources bring more convertible visitors and which ones just waste the budget. After all, it is their job to launch and optimise campaigns.
Fun fact: marketers are fighting for every penny. Considering that the average metric is between 1-3%, an increase of even 1% can boost the business profitability by 50% to 100%.
In marketing, you have to deal with huge amounts of information that are beyond the capacity of a single person. But you don’t need to hire a team of specialists for a small project. Analytical tools such as MixPanel and Cyfe can help. It is better not to skimp on additional features of third-party services and get an extended subscription — this will allow you to view metrics on different traffic sources in one click. But let’s not forget about Google Analytics! It’s a must.
When analysing conversion rates, marketers have to evaluate the underlying metrics, let’s look at them in more detail.
Micro and Macro Conversions
In marketing, a micro conversion is a target action that occurs at an intermediate stage of customer engagement. These are important, but not the main actions that indicate the customer’s interest or readiness to buy: registration, contact form submission, support contact, presentation download, product addition to the cart, free trial request.
By tracking micro conversions, you can do two things. First, you can identify which customers are most likely to order and nudge them with retargeting. For this, you need tools like the above-mentioned Facebook Pixel that track the visitors’ actions on the website. Second, you can see at what stage you lose too many potential customers and fix the mistake.
Macro conversion shows the percentage of users who reach the final stage of the sales funnel and perform the main target action — placing an order. Depending on the niche, this can be ordering a delivery in an online shop, making a deposit, paying for a premium subscription, inviting a consultant, an installer, etc.
The goal of macro conversion is to count leads: requests from a potential customer for a service with contact information.
Macro conversion allows you to evaluate and see the overall results of your work, the effectiveness of your chosen business promotion strategy. This is a sensitive metric. Even a 1% increase for an average company usually means a significant increase in profit.
Direct and Assisted Conversion
Direct conversion is straightforward. The metric shows the percentage of users who take a target action (usually calculated for an order) right after clicking on a link from a search engine results page or an ad.
This indicator is usually low, except for cheap niches, where impulse buying is possible — people often want to research the product, compare competitors’ offers. That’s why marketers are more interested in assisted (or associated) conversion.
Usually, a user needs several touch points to make a decision and they can come from different channels.
Here’s how buying a set of picnic dishes (or a smartphone, a vacuum cleaner, a blouse, a fridge, or anything more expensive than lunch at your favourite cafe or restaurant) works in reality:
The user enters a query, visits several websites from the search results, checks the offers on Google Shopping or Amazon;
After a while, they read reviews or compare offers on an aggregator website;
A break and reflection stage — searching for information can be exhausting;
Visiting a news, entertainment site, a portal about football… where they see a banner with their favourite model, new offers that they haven’t seen yet or a discount from your shop;
At this stage, the user is likely to click on the ad, maybe even add the product to the cart… But few people order and pay right away. It’s not time yet;
Finally, while chatting on a travel forum with friends or looking at photos from picnics of acquaintances, they see a targeted ad on Instagram or Facebook with a reminder of the added product in the cart. The time has come, the customer is ready.
If you only count direct conversion, you will miss the bigger picture. The lead was given by targeted advertising from social networks, but other channels of attraction also played a role. There are at least four sources of traffic involved: organic from search, search ads, aggregators and targeted ads on social networks. The route can be longer. The intermediate touch points are what assisted conversion is about.
Assisted conversion is the tracking of intermediate touch points (visits) with a brand or website from different channels that eventually lead to conversion.
Assisted conversions allow you to see a customer’s journey from first contact to purchase (sometimes taking months) and build a Customer Journey Map (CJM). The metric shows which traffic sources are most effective and which ones can be dropped.
You can view the assisted conversion in Google Analytics under the Reports / Conversions / Multi-channel Funnels Tab.
If orders are also taken via calls, it’s worth using CRM data. Tools with the ability to match a promotion channel to a specific call will be useful.
How to Assess Conversion Rate
Conversion rate is not a one-size-fits-all indicator. 5% of orders in one niche may mean super profitability, while in another it may mean losses. Even in the same vertical, the same CR rate does not always imply the same success. How come?
Conversion does not account for the volume of financial flows and the actual number of visitors. It only shows the percentage of users who place an order. But the average order value, as well as the cost of acquiring a customer, vary greatly in each niche. Here are some examples.
There are two food delivery companies. Both have the same operating costs — about $1,400 plus up to $400 in advertising and promotion costs. One has an average of about 30,000 visits and 500 orders with an average order value (consider only the markup — profit) — $6. The second company has 8,000 visits per month and 250 orders with an order value (markup) of $5.4. We compare the conversion rate and profit. The first company’s CR is 500 / 30000 x 100% = 1.6%. But the profit is 500 x 6 = $3,000. The second company’s CR is 3.125%. And surprise, the second business with twice the conversion rate suffers losses with a revenue of $1,350. This is less than the operating costs and advertising costs.
There are many other examples that illustrate how conversion rate can vary depending on the niche, the product, the price and the profit margin. Let’s look at some cases from the affiliate marketing world.
The bookmaker’s affiliate pays for each registered customer with a minimum deposit of $16. The cost of a click on an ad at the traffic exchange is $1.7. The conversion rate on advertising is 9%. That sounds impressive, right? But let’s crunch the numbers. We have 100 visitors. Advertising costs (expense) — $170. Income: 100 x 9% x 16 = $144. In the end, we have a loss of $26 with a relatively high conversion rate.
On the flip side, there is the premium goods segment. With a markup of three, four or even thirty thousand dollars in the car segment, you can invest hundreds of dollars to attract one customer and still have high profits even at a conversion rate of 1%.
To understand whether your conversion rate is acceptable, you should calculate ROI — return on investment. It should be positive. In affiliate marketing, it’s easier: you compare the advertising costs with the income. In sales, you also have to consider operational costs, from renting a warehouse to paying salaries for managers.
You can find online some average CRs provided by research agencies. For example, the average CR for eCommerce is 2.27%. But this figure is not very meaningful, as it varies a lot depending on the niche and country. For instance, in the children’s goods segment, CR is 0.99%, in the decorative home goods segment it is 2.44% and in pet products it is 3.79%.
If we look at the EU countries, we see a wide range from 0.99% in Italy to 2.22% in Germany. CR also differs by traffic source. The highest is for email newsletters (about 6%), followed by organic search traffic (about 2%) and targeted advertising on social networks (0.74%).
You will have to find out the conversion rate for each GEO and a specific offer by yourself with the help of tests. Of course, you should also calculate in advance what level is acceptable for you.
In general, you can aim for a conversion rate of 1-3% if you set up your advertising campaign correctly. But don’t let that limit your ambition. You can also achieve incredible results of 15% or even 30% in some niches, such as dating.
How to Increase Your Conversion Rate
Conversion is a tool that helps you assess the quality of your marketing strategies at every stage of the sales funnel, from advertising to sales. And by improving it, you can ultimately increase your profitability. How can you do that? Here are some tips:
Analyse your website and find the stage where you lose the most visitors. This will help you see what needs to be changed;
Redesign. A beautiful design is not enough. It must be user-friendly and intuitive. If you have a specific brand, use your branded colours;
Write clear and correct descriptions on your pages. Use formatting, highlight the benefits and divide the text into blocks;
Optimise your website’s performance: remove unnecessary widgets, add SSL certificates, fix code errors — your page should load fast and not freeze on the user’s side. You can check your website’s speed using Google’s testing tool or manually, by visiting from different devices and browsers;
Provide comprehensive information about your products: show your product from different angles, make high-quality photos and compile detailed descriptions that address the customer’s possible concerns;
Use different sources of traffic: contextual, targeted, banner advertising, search engine optimization, reviews on third-party sites, aggregator catalogues;
Use all the features of your ads: add quick links to popular pages, descriptions, contacts;
Add useful content to your website. You can have a blog, where you can publish comparisons of similar products, articles with tips for choosing, etc.;
UX-design — simplify the path for the visitor from landing on your website to making a purchase. Minimise the actions required, arrange the controls clearly, reduce the fields in the feedback form, add a one-click buy button;
A/B-testing — run different design variants alternately. This will help you see what users prefer and use a more favourable design. This is more often used for testing ads and landing pages. But you can also do it for your whole website, by creating promotional pages and sending users from your ads;
Pay attention to your targeting settings. Track your audience and run ads for users who are really interested in your service;
Use third-party tools for more detailed analytics.
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