Instantly Double Your Conversion Rate!

I can instantly double your conversion rate.

How? Is it through better user experience? A/B and multivariate testing? Those annoying talking avatars I see everywhere?

Nope. It’s simple math.

Why Does Conversion Rate Matter?

If you haven’t noticed, there’s been some buzz going around the blogosphere (and Commerce360) about improving your conversion rate. Nielsen/Netratings released a list of the internet retailers with the top 10 conversion rates on the web.

Conversion rate is obviously an alluring metric, because it is one way of representing how well your site is persuading people to take the actions you want them to take, usually purchase. The usual wisdom is: the bigger your conversion rate, the better.

Generally, that’s true. However, it’s also one of the easiest metrics to miscalculate or misinterpret.

Calculating Conversion Rate… Maybe

Calculating conversion rate should be simple–just divide the number of orders (or desired actions) by the number of people who came to your site in a given time period. That is: orders / people.

The problem when it comes to calculating your conversion rate is the denominator. Web analytics are very imperfect and no one metric truly measures “people” accurately. Instead, you end up substituting some other number to represent “people”.

You basically have 3 basic choices of metrics to substitute for “people”:

1. Visits - As defined by the Web Analytics Association, this is, “an interaction, by an individual, with a website consisting of one or more requests for an analyst-definable unit of content (i.e. “page view”). If an individual has not taken another action (typically additional page views) on the site within a specified time period, the visit session will terminate.”
2. Unique Visitors - The WAA’s standard definition of this metric is, “The number of inferred individual people (filtered for spiders and robots), within a designated reporting timeframe, with activity consisting of one or more visits to a site. Each individual is counted only once in the unique visitor measure for the reporting period.”
3. Clicks - Sadly, there is no standard for measuring clicks. Typically, this is reported by another tool (such as Google’s AdWords or Linkshare’s affiliate management tool). Clicks are the number of times a person clicks on a link, usually an advertisement, as measured by the front-end tool. This will likely vary from the count of visits from that sort, because of click fraud and people click away before your analytics code loads, among other things.

The difference can be significant. Let’s take some fictional numbers:

100 orders / 1500 clicks = 6.7% conversion rate

100 orders / 1250 visits = 8% conversion rate

100 orders / 1000 unique visitors = 10% conversion rate

Which Conversion Calculation Should You Use?

Here’s what the experts say:

Avinash recommends unique visitors as the denominator:
“Definition first: Conversion rate, in percentage, equals Outcomes divided by Unique Visitors during a particular time period.”

Nielsen/Netratings defines conversion rates as “the proportion of unique visitors to a site who become buyers.”

Eric Petersen presents 2 metrics in The Big Book of KPIs: Order Conversion Rate (Orders/Visits) and Buyer Conversion Rate (Customers Converted / All Visitors) and recommends you look at both to understand the buying lifecycle better.

Google Analytics calculates conversion with visits as the base.

Confusing, right? I am of the “pick a method and stick with it” camp. Trending and segmentation are more important. It seems to me like using visits as the denominator is the most common method, though unique visitors probably makes more sense.

I hope the Web Analytics Association standards committee will settle the issue for once and all. In the meantime, you need to learn about…

(Mis)Interpreting Conversion Rate

Which would you rather have, a site that converts at 1% or 10%?

It’s possible that you’d be better off with a site that converts at 1%. You need to look at the whole picture of your site.

Interpreting Conversion: CoVER- Conversion Rate, Volume, Efficiency, Revenue

A 10% conversion rate is totally sexy. In general, you do want a higher conversion rate. There are usually obvious things that you’re doing wrong that are limiting your conversions.

But, you have limited resources, limited budget and goals. You need to get the whole picture to pick the right strategy for your site.

When analyzing conversion rate, keep the whole picture in mind. Think about CoVER– Conversion Rate, Volume, Efficiency, Revenue:

• Conversion Rate - See above.
• Volume - The amount of traffic you get to your site in general or from a particular channel. Depending on how you’re measuring conversion rate, this will likely be visits or unique visitors.
• Efficiency - What it costs you to improve your website, usually in consulting fees and employee salary.
• Revenue- You want to look at the Average Order Value (AOV) (the total revenue from sales / # of sales) and total revenue.

You really can’t look at conversion rate in a silo. Let’s imagine that you have a site with 1,000 visits, a 1% conversion rate and and average order value of $100. Let’s also imagine you can do three things to improve your site:

1. Boost volume
2. Improve conversion rate
3. Improve average order value

Let’s also assume that each costs you $50,000.

Think of all of the possible scenarios:

Obviously, these are ludicrous numbers. I’m way overestimating and oversimplifying on a million different fronts (e.g., you get the benefit of conversion lift beyond the time you pay for it).

But, look at how increasing your conversion rate 10x doesn’t always produce the most desirable outcome.

The point is that chasing conversion rate is only one part of the puzzle. The next time you see a report about the top converting websites, don’t despair. Keep up on the work of conversion rate specialists and balance your conversion rate choices by thinking about CoVER–conversion rate, Volume, Efficiency, and Revenue.

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