What is conversion rate and how to calculate it
Everyone, one way or another connected with Internet promotion and sales, is probably familiar with this concept and does not need additional clarification of terminology. But it will be useful for beginners to understand in more detail in order to understand what it is all about, what kind of formulas will be further in the article.
Therefore, first we will briefly describe what a conversion rate is, and then we will take a closer look at what types of conversions are, how they are calculated, and what these indicators depend on.
What is conversion in simple words
Conversion in Internet marketing is the percentage of site visitors with those who have completed the target action: filled out an application, placed an order, subscribed to the newsletter, left contacts for feedback, etc.
On the Web, you can also find alternative designations for the conversion rate — Conversion Rate and CR. This is the same!
Important! Don’t confuse CR and CTR. CTR is the ratio of clicks on an ad to its total number of impressions. The formula, by the way, is similar, but these are completely different indicators. We will return to this issue in the next paragraph.
To better understand the term CR, let’s take an example.
You have an online store that is visited by 2,000 people per day. Of these, 300 have placed an order. The percentage ratio between visitors and buyers will be the conversion indicator.
Conversion in marketing and advertising
Everything is simple here:
- CR in marketing — the ratio of site visitors who have completed the target action to their total number;
- CR in advertising is the ratio of the number of ad impressions to the number of hits to the advertiser.
Please note! Conversion is not always synonymous with selling a product or service. Moreover, in most cases, we are talking about microconversions — targeted actions leading to a purchase, and not about the purchase itself. Later, we will look at what micro conversions and macro conversions are.
What about CTR?
This indicator is calculated using the following formula:
CTR = Clicks ÷ Impressions × 100%
CTR is an important indicator when analyzing PPC campaigns. But it concerns advertising and evaluation of its effectiveness, not sales. It can and should be evaluated, but equating it with CR is a mistake.
If we discuss what conversion is in sales, then we are talking about the ratio of real buyers to potential ones. The principles of conversion calculation are essentially the same as in marketing and advertising, but in this case we are more often talking about offline conversions.
The main difficulty in calculating conversion in offline sales is that it is impossible to determine the exact number of potential buyers here. Let’s say you have your own kitchenware store. 100 visitors came to you per day. Are all of them potential buyers? No. Someone mixed up the door, someone came in to warm up, and someone decided to ask where the bus stop was. On the other hand, thousands of people pass by the store every day. Someone will see a sign and decide that in the future they need to come and buy something. You don’t see these potential customers and you can’t count them. Therefore, in most cases, it is not necessary to talk about the objectivity and accuracy of conversion calculation in offline sales.
The principle is the same as in the previous paragraph, with the only difference that it is much easier to calculate the conversion percentage here. You can record every visit to the site and every targeted action. You just need to calculate the ratio of users who have completed a certain action to the total number of visitors.
What are the types of conversions
There are two main types of conversion:
- Macro conversion is an indicator of the number of users who have completed the target action and brought direct profit to the company.
- A micro conversion is an indicator that takes into account target actions without taking into account the main action (purchase). This can be registration on the site, subscription to the newsletter, opening a pop-up banner, etc.
It is important to understand the strategy here: a good marketer goes from less to more. Without successful micro conversions, macro conversions are impossible.
Among specialists, you can find additional types of conversions. They are not always remembered, but we are obliged to mention them:
- Direct CR — when a visitor enters the site and immediately places an order.
- Cross-device CR is a principle that involves tracking the actions of one user from different devices.
- Associated CR is a term that refers to the points of interaction with a web resource that ultimately led to a conversion.
- CR by impressions — the number of times ads were viewed.
If you are just starting to analyze conversions, it is not always necessary to understand these terms at first. But for the future, we still recommend that you study them in more detail and analyze them correctly.
How the conversion is calculated
So how do you calculate conversion? There is a simple formula with which you can independently determine the CR indicator:
CR = (number of conversions ÷ number of visitors) × 100%.
Let’s try to make calculations for clarity.
So, we have an online store that was visited by 2,500 users per day, 200 of them ordered goods. Knowing this data, we can easily calculate the conversion:
(200 ÷ 2500) × 100 = 8%.
As you can see, nothing complicated. You can take values for certain periods, compare indicators, evaluate how website changes, updates in an advertising campaign, technical improvements to your web resource, etc. affect the conversion.
If you do not want to perform mathematical calculations manually, this, in principle, can be avoided. Developers from Google have already done everything for you. It is enough to use Google Analytics.
In your Google Analytics account, you can not only see the conversion values for the selected periods, but also use various calculation templates for several main categories:
- Traffic sources (registration, account creation).
- Income (making a payment).
- Inquiry (view contacts or product).
- Interaction (sharing information, adding to the wishlist, subscribing to the newsletter, etc.).
Google Analytics is a useful platform that allows you to get comprehensive information about conversions, analyze their fluctuations under the influence of various factors, and conduct A/B testing.
From the formula given in the previous paragraph, additional ones emerge. With their help, you can calculate other conversions:
- Visitor Engagement Rate (Website Conversion Formula)
CR = Total number of conversions ÷ number of sessions × 100%.
- The level of interest of new visitors (sales conversion formula)
CR = Total number of conversions ÷ number of unique visitors × 100%.
- Level of interest of leads in the order (conversion rate formula)
CR = Total Conversions ÷ Leads × 100%.
In online promotion, the cost of a conversion is also important. The cost per conversion formula is very simple:
the sum of the costs of all conversions for the period ÷ the number of these conversions
For example, we take three conversions, the cost of which is $10, $12 and $15. We sum and divide by their number (three). We consider: (10 + 12 + 15) ÷ 3 = 12.3. That is, the average cost per conversion in our case is $12.3. Of course, this is the simplest example. Usually you have to work with much larger amounts of numerical data and look for ways to automate the calculation process.
What percentage of conversion is considered normal
This is a very important point. Most beginners simply don’t know what a high, normal, or low conversion rate is. Google answers this question very succinctly: a normal conversion rate is 2-5%. And here you should have a logical question: normal for whom?
The fact is that in different areas of business and marketing, the norms differ. Somewhere 2–3% is an excellent indicator, but somewhere 5–7% is not enough. Here are some examples in different areas with average CR rates for the market for them:
- sale of real estate — 2.9%;
- B2B consulting — 5%;
- business services — 3.5%;
- healthcare — 3.5%;
- legal services — 3.3%;
- tourism — 5%.
Note that these are just averages. In the same tourism, 19.7% is considered high CR, and in the field of B2B consulting — 21.7%.
The minimum conversion threshold is also different for each area, and this must be taken into account. Before concluding that you have an excellent or poor CR, we recommend that you first find out the average values specifically in your niche.
What determines the conversion rate
There are dozens of factors that affect the conversion rate, from very significant to insignificant. We will list the ones that really affect CR a lot. You should pay special attention to them if the indicators are too low.
CR and CTR largely depend on what kind of ads you publish, how well the advertising campaign is set up. If we are talking about contextual or targeted advertising, then banal mistakes in the analysis of the target audience and the lack of a competent USP can significantly reduce the CR indicator. If you see that your ads are not generating conversions, this is a good reason to rethink your advertising campaign strategy.
Site position in search results
The higher the site in the search results, the better. Google organic traffic is an important source of conversions. This once again proves that SEO promotion is critically important. If your site is not in the top 10 results for key queries, you can’t count on high CR rates. Yes, you can use contextual advertising to get your ads in the first positions. But it doesn’t work in the long run.
Website design and content
UX and UI designers, copywriters and marketers get paid for a reason. A website doesn’t just have to be pretty. It must be convenient, intuitive, adapted for mobile devices. If a person enters the page and simply does not understand what and where is located here, where to read about your product, how to place an order, he will quickly go to competitors. Remember: the modern Internet user is not particularly patient. He does not want to understand design intricacies and multi-level nesting of pages.
Website loading speed
A fast loading website is important! If the page takes more than three seconds to load, there is a good chance that the user will simply close the tab without waiting for it to load. Naturally, there are exceptions. For example, large online stores and aggregators. They always take longer to load. When a regular landing page takes 5-7 seconds to load, it’s not very good.
General technical condition of the site
Broken links, 404 errors, circular redirects, crooked layout, lack of responsive design or poor implementation of it — all this scares off a potential client. If your site does not work correctly or is unstable, we advise you to conduct a detailed technical audit as soon as possible and correct all detected shortcomings.
Pointless SEO texts with dozens of keywords and no hint of usefulness are a thing of the distant past, at the very beginning of the 2000s. Now the content on the site should be useful for the target audience, answer their questions, help them make the right choice and make the final decision. Of course, this does not exclude the need to sharpen texts for SEO. But everything should be in moderation.
What is CR?
CR, or conversion, is the percentage of site visitors who complete the target action in relation to the total number of visitors. This principle of conversion calculation is used not only for online stores, but also for service sites and even offline.
How to calculate conversion?
The classic CR formula is as follows:
CR = (number of conversions ÷ number of visitors) × 100%.
This formula allows you to calculate CR for any time period — a day, a week, a month, a year, or even the entire time the online store (or other site) is open.
What conversion is considered normal?
The average value of normal conversion is from 3 to 5%. However, these numbers can vary significantly depending on your industry. For example, in the areas of B2B consulting and lending, the figures are higher. In the field of legal services and in real estate, they are lower. Therefore, “normal” indicators should be evaluated in your area, and not look at the average values for the market.