What is Conversion Rate?
The Conversion Rate refers to the number of conversions (e.g. orders placed, subscribers, trial sign-ups), expressed as a percentage of the total number of visitors to a webpage.
Table of Contents
How to Calculate Conversion Rate
The conversion rate measures the number of users that performed a specific desired action.
The “end goal” is determined by the company, with common examples being a customer placing an order, a user subscribing, or a sign-up for a free trial.
Once determined, the figure is divided by the total number of users that visited the website (and had the potential opportunity to convert).
Upon competition of the desired action, visitors are effectively converted into either:
- Leads ➝ Potential Customers (i.e. Pipeline)
- Customers ➝ Paying Customer (i.e. Converted)
The term “desired action” can take many forms, and it varies by the company (and website), but some common examples include the following:
- Customers Order
- Subscriptions to Newsletters
- Event Registration
- Free Trial Sign-Up
In particular, the metric is most frequently referenced by e-commerce companies and application-based businesses.
Nevertheless, tracking conversions is essential for all companies across different industries, such as a retail store measuring the percentage of customers that entered their store and then purchased an item.
Once potential customers convert into paying customers, opportunities for upselling and cross-selling emerge to further derive more revenue from the existing customer base.
Conversion Rate Formula
The conversion rate is calculated by dividing the number of conversions by the total number of visitors.
For example, if an eCommerce business received 1,000 site visitors in one month and received 50 customer orders, then the conversion would be 5.0% for the month.
- Conversion Rate (%) = 50 Orders ÷ 1,000 Site Visitors = 5.0%
How to Optimize Conversion Rate (CRO)
Conversion rate optimization (CRO) describes the best practices implemented by websites to optimize their conversion rates and enhance the efficiency at which sales are generated.
Broadly put, above-market conversion rates imply that the current marketing strategy is bringing in the right customers to the site (i.e. attracting the right targets to sell to), and the sales pitch or “message” resonates well with the viewers.
Defining what constitutes a “good” conversion rate is entirely dependent on the industry, audience demographics, as well as the total site traffic among various other factors.
For instance, an online business selling a niche product would aim for a much higher conversion than a business that sells a broad line of products with a broad reach, i.e. companies with a larger total addressable market (TAM) lead to more site traffic (and less “targeted” viewers).
However, if a business brings in greater site traffic, the reliance on a higher conversion rate declines, so they typically will target lower conversion rates.
As a company’s website scales and site traffic (e.g. the volume of viewers) increases, it is inevitable for the conversion rate to decline over time, similar to how the growth rate of companies decreases in the later stages of their life cycle.
