Digital marketing

How to Calculate The Conversion Rate

04 September, 2020

The conversion rate is important for any business. This should be done when preparing the business plan, say nothing about active work, especially for using customer attraction channels. The conversion rate has to be increased during this entire period of developing your company

What is a conversion rate

A conversion rate is a ratio of target visitors to all visitors. Target actions are buying something, sharing contacts, and taking a survey. The conversion rate can be 0-100% but it seldom rises or falls to extremes.

For online stores the conversion rate is a ratio of the buyers to all visitors. So it should be calculated as a ratio of these figures. Making a sale is the main target (both sales online and by phone are considered).

The conversion rate can tell much about the company’s performance. If it is high, this means that the online store has a high usability and SEO; buyers find what they want. A low conversion rate means that visitors seldom become customers.

For estimating the efficiency of the online store, the conversion rate should be analyzed. The website can have a lot of visitors, but if 0.1-0.2% of them make purchases, this is bad.

The conversion rate should be analyzed on different stages of the sales funnel.

How to calculate the conversion rate

Let us discuss the calculator of the conversion rate.

It is easy to do this for based on the ratio of visitors who made a purchase or another target action to all visitors. The calculator for this is given below:

Conversion rate (CR) = Cost Per Action (CPA)/Cost Per Click (CPC) x 100,

where CPA is the target actions made by the visitors

  • CPC – all visitors
  • CR- conversion rate
  • for converting the result into percent multiply it by 100.

If 500 users visited the website and 35 of them ordered something, the conversion rate will be as follows:

35*100/500 = 7%.

The conversion rate is calculated in %. As for search advertising, the CTR is considered. If 500 clicks and 25 conversions were made within a certain time, the conversion rate will be as follows:

25*100/500 = 5%.

So the ROI efficiency can be calculated for any channel of Internet marketing. These stats can be used for boosting the conversion rate.

The conversion rate can be used for determining the efficiency of the online store. The company holder should not strive to appear at the top by traffic but boost the sales as high as possible. High traffic does not always bring a high conversion rate.

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Besides the overall conversion rate, it can be calculated for certain stages of the sales funnel. E.g., for the figure below:

  • 200 visitors among 1000 opened the flypage, i.e. on this stage, the conversion rate was 20%;
  • then 50 visitors among 200 added the product to the shopping cart so the conversion rate was 25%;
  • 20 visitors ordered something. Considering the previous stage the conversion rate was 40%;
  • multiply the conversion rate of each stage and get the total value for the sales funnel: 0.2 х 0.25 х 0.40 = 0.02 or 2%. Such calculations are made for different intervals. It is not a bad result but it can be improved.

There is no need to calculate the conversion rate manually. Such modern monitoring systems as Metrica or Analytics calculate it automatically. All conversion stats are available in Google Adwords and Yandex.Direct accounts.

A good conversion rate

There is a dependency between the conversion rate and the profit but when analyzing different online stores, it appears that some websites with a low conversion rate have a higher profit. It mainly depends on the business sphere.

The regularities below should be considered:

  • the higher price is, the fewer visitors are converted into customers. Such stores show a low conversion rate. E.g., the conversion rate for sports goods (gym machines, sporting gear, etc.) can be 0.3% and 0.5% for furniture. If the conversion rate rises by 0.1%, the result would be rather good;
  • gifts and children’s goods have a good conversion rate as people do not usually skimp on their children. The conversion rate in the healthcare sphere is also not bad;
  • the conversion rate on upscale goods decreases as before buying an item tens of variants are viewed. A visitor is going to spend a hefty sum, so s/he thoroughly analyses all variants. But as for the products in one price range, for increasing the conversion rate your service and usability should be ideal as even a slight failure will lead to losing business. If your service attracts a visitor, most likely s/he will make a purchase;
  • media and finances have a high conversion rate; top stores have up to 10% of conversion. Smartinsights gives interesting stats for 2019; according to it, the average conversion rate is 3.0%.

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Please note that these data are average. This depends. If the conversion rate of your online store is 2.0% and the average CR of the industry is 2.5%, don’t panic: the conversion rate can be increased. When evaluating the business performance, other figures should be also analyzed (e.g., ROI and profit change dynamics for the few last years).

Here is an example:

  • one company works with a 2.0% conversion, its average amount received is $70. If we evaluate the company performance using these stats, then 1000 visitors of the store allow gaining 0.02 х 70 х 1000 = $1400
  • the conversion rate of another company from this sphere is about 1.0% but the average amount received is $180. The conversion rate is lower due to non-optimized communications with the prospects (the managers miss some requests). But upsales so as discounts and promo campaigns are well organized. So every 1000 visitors allow obtaining 0.01 х 180 х 1000 =  $1800.

If judging by the conversion rate only without other figures, it may seem that the second company is an underdog. But in fact, both competitors are rather sound, although they have room for improvement. The first company should think about increasing the average amount received and the second one should increase the conversion rate.

The conversion rate should be analyzed with other business performance indicators.

Stores selling music, software, and games have an all-time conversion rate. Users who visit them know what they need to buy.  More than 30% of users made a target action for some categories in the Play Market and AppStore.

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Why is it critical?

The conversion rate shows the impact of marketing efforts on the profit and the impact of online source changes on business efficiency. This is true not only for e-commerce – subscription for mailout can be successful for an informational portal and signing up or other actions can be successful for a landing page.

The calculations at the beginning of the article shows that the changes in this figure influence the profit. If every 1000 visitors per day allow gaining 1% of conversion rate, 10 sales will be made. So if this figure is increased by 1%, the sales volume will increase twice. If calculating the conversion rate for a monthly period, it is clear that the company can earn much more. The conversion rate has to be calculated not only in percent but also in dollars for understanding it better.

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The average conversion rate for an online store is about 1% depending on the industry. It looks like a figure. But do you know what it is? 99 visitors among 100 leave the website without buying anything. So the company can increase the profit twice or trice by optimizing the conversion.

This is very important as retail giants enter the e-commerce market; this sphere has an unparalleled growth notwithstanding the crisis.

Factors that influence the conversion rate

Olena Huk has prepared video “What is new in the website UX analysis in 2020 | Usability trends | examples”. We recommend watching it and finding out what should be analyzed and changed on the website. Enjoy!

Traffic is not enough. Companies need to convert visitors into buyers, the more – the better. Customer attraction is not free. It is bad to earn nothing on this.

Online store conversion depends on several factors both related to the functionality of the internal and external ones. If you realize this, you will be able to improve this performance and improve conversion.

Traffic quality. A lot of visitors is not always good. Not all users who visit your website are your prospects. Some users visit your website just for the fun of it and others open in occasionally forwarded from another website. The target audience has an impact on the conversion rate so perform landing page SEO, try some advertising, etc.

E.g., a niche online store will have a higher return from users attracted by the key phrase “purchase memory foam mattresses in New York” will be higher than from ones attracted by the keyword “mattresses”.

Informative value. There are two most common extremes: an excess of graphics, text, and other elements on the website or lack of information. Orders are based on the received data. So remove all elements that can distract the user from studying the flypage as this is the main target. But try not to affect the informative value.

Trust of the seller. The final decision by the prospect of whether to make an order or not depends on the reliability and trust of your store. This can be even more important than the price difference. Trust elements include product quality certificates (if provided for the item), test results, detailed contacts of the seller, detailed warranty, and return/refund terms and conditions.

Feedback. This can be considered as the continuation of the next point but this is not the point. The opinion of other people who own this item can become an additional argument for making the decision especially if the page contains detailed feedback with describing the advantages and drawbacks and some questionable aspects based on the user experience.

Product range. A choice increases the chance that the user will make a target action. The assortment can be extended not only with the items but also with supplementary products or accessories as this increases the offer value.

The product range is important for specific niche online stores, say nothing about the market leaders. In terms of conversion 300 items in 10 categories are better than hundreds of categories with a few items in each one.

Shipment and payment. Every buyer has his/her preferences – somebody pays with a bank card, somebody makes an order if there is cash on delivery. The same for shipment: capital dwellers prefer to pay a courier for door shipment and citizens of small towns prefer using services of transportation operators or USPS. We discussed this in the article about shipments from an online store and recommend reading it.

Convenient work. Even if the buyer is willing to purchase the item, this can be useless if the online store does not work. E.g., an error occurs when the user is redirected to the shopping cart and the  “Purchase” button sometimes fails. The inconvenience of use is also a great problem as sometimes a user has to fill in a lot of fields for making an order or the navigation/filters in the catalog are inconvenient. Users hardly want to view thousands of pages for finding the needed product. So ergonomic use and the so-called online store usability influence the conversion rate.

If we put all recommendations for boosting sales in one sentence, we will have the following: create an attractive, convenient, and sound website covering the interests and needs of your target audience. Of course, do not forget to work on attracting really good traffic.

How to increase the conversion rate of an online store

The conversion rate can always be improved. Every online store needs a customized approach, some methods always work.

They include:

Usability audit. Most likely, there are some strong competitors in your sphere. If the online store is inconvenient, the customer will leave it. Visitors are interested not only in the target action but also in convenient navigation and work with the website. Perfect navigation is the key to improving the conversion rate;

Put the updated prices in a prominent position. Buyers do not want to call a manager for finding out the price or fill in the forms. The information about prices should be as clear as possible. If you offer several service plans (in the service industry), describe their peculiarities. Do not make the sales funnel longer;

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A convenient shopping cart. It should be available from any online store page. Add some useful options there, e.g., for showing the list of the added positions when hovering on the area. Also, the shopping cart should count the total price of the added positions so it should be informative;

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Online help. Sometimes the flypage does not contain enough information and customers may have some questions. A fast reply from the manager is critically important. The visitor decided to make a purchase but he has a few questions. If the manager does not answer them, the visitor will leave the page. It is hard to increase the conversion rate without proper help. Visitors think that you do not appreciate them when your staff does not answer quickly;

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A feedback page – this increases the trust and shows that other users have made a purchase already. Feedback should not be always positive. Any visitor may ask questions or point out some nuances. After reading such feedback the users realize that there is a high demand for your products;

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Subscriptions forms. The database with the contacts of prospects can be extended. It is recommended to do this with subscription forms unobtrusively placed on the website. They can be added on the page, in the footer or pop-ups;

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Use pop-ups with lead magnets for improving the conversion rate. The pop-up draws attention if it contains profitable offer; this gives more chances that the visitor will make the target action. In case of online stores this can be a bonus, discount or free shipment;

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Develop your blog. Blogging is not the preserve of writers and creative people. Blogs allow showing the new items and approve yourself as an expert in your industry. Also, the blog allows rising the traffic and converting readers into buyers. This will increase the conversion rate. In the service industry a blog is a must;

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Organize smart mailouts. Remind the customers about yourself unobtrusively. Prospects should be informed about promo campaigns if they added something to the shopping cart but have not made the order yet. Do not remind them about this in the mailout. Also, this method is suitable for cross-selling and upsales. Notify the users about products related to those they have ordered already;

Convenient search. This is very important for an online store. The search should interpret even some slightly inappropriate keywords and offer the right variants. Also, it should have as many filters as possible. The search box is usually located in the upper part of the page and is always available;

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Leave your contacts (phone number and other). This allows increasing the trust of the online store and increasing the conversion rate later. If the owner is not anonymous, provides his/her phone number, messenger links, and the real address, s/he is not likely to be a fraudster;

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An elaborate loyalty program. It allows creating the customer kernel. If you stimulate your buyers with discounts and bonuses, they will get used to making purchases in your online store and this will improve the conversion rate;

how-calculate-conversion-rate-15Optimize the mobile version. A modern lifestyle and advanced technologies allow making orders all over the world if there is an Internet connection. The mobile conversion rate is drastically important, so optimize all the elements of your online store for mobile devices;

Promote the company pages in social media. This kills two birds with one stone – this creates a participation effect and the user does not consider the company as something impersonal any more; also this allows gaining profit as you get another channel for solving emergencies. This increases brand awareness;

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Use videos. Photos are usually less informative than videos. The latter allows presenting the items better, making a review, and answering the most frequently asked questions. If a man or a woman appears on the video, this will bridge the gap between your company and the buyer and remove excessive formality.

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Conclusion

The conversion rate is a very important indicator and one has to know the factors affecting it. Using Web analytics you can find the average conversion rate of the website and channels that forward users to it. So you can find out what to focus on and optimize.

Develop proper strategies, strive, experiment, and make conclusions based on the data obtained. There are no universal solutions – they should be found for each certain case.

Soon we will publish new material about the methods of increasing the conversion rate for an online store so subscribe for our mailout or social media. Be the first to check this out!