Understanding Conversion Rates

Among business website KPIs (key performance indicators), conversion rate is one of the most important — but also one of the most confusing.

At its simplest, it quantifies the percentage of visitors that take a defined action at your website. For example, if you have an ecommerce site, your conversion point might be a sale. If 100 people visit your site and 3 of them buy something, your conversion rate for that time period is 3%.

If only it were always that simple!

Look at all the moving parts this simple idea can have:

• How do you define a conversion? It’s easy if a conversion is putting something into a cart and paying for it. If sales don’t take place at your website, you might instead need to look at signs of intent to purchase, at smaller conversions like signing up for a newsletter or downloading a white paper, or at other conversion points like filling out a contact form.
• Traffic rates can vary. If your traffic increases and your conversion rate stays the same, you’ll have more conversions but the same conversion rate. For example, if our example ecommerce site maintains a 3% conversion rate but gets 200 visits, they’ll have 6 purchases instead of 3. They have more conversions, but no change in their conversion rate. This is often what we see: a steady conversion rate, but increased revenue as traffic improves over time.
• Conversion rates can vary. We could increase traffic simple by paying people to visit or by having plenty of celebrity gossip on our website. More people would come, but that junk traffic wouldn’t convert, so we wouldn’t have more sales. We could have 300 visits, but just 3 purchases. In that case, our conversion rate is down to 1%. Increased traffic doesn’t benefit our example ecommerce site in this case.
• The value of a conversion can vary. If our example 3 purchasers each consists of a single $20 item, we’ll have $60 in revenue. If we increase our traffic or our conversion and get 6 purchases but each one is just a $10 item, our revenue will stay the same.

In order to increase revenue, we can increase

• traffic
• conversion rate
• size of purchase

… or any combination of these items.

There are other important KPIs, but understanding conversion rates is an excellent starting point.