What Is Conversion Rate & How Do You Calculate It? via @sejournal, @coreydmorris

Conversion rate is one of the most common metrics used by marketers, sales folks, and business professionals.

It is discussed often and taken on the surface as an important metric or key performance indicator (KPI) for most businesses.

However, it can also be misapplied, misunderstood, or improperly established for use as a key metric.

It is important to revisit conversions, conversion rates, and the use of the metric periodically.

It is even more important for any new initiative to have the metric well defined and understood before positioning it as a key KPI.

In this guide, I’m going to dive deeply into what conversion rate is, how to calculate it, why that’s important, and ways to improve it.

What Is Conversion Rate?

Google provides one of the more concise definitions of conversion rate:

“Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad interactions that can be tracked to a conversion during the same time period.”

Now, let’s get into what it all means.

Conversions

Unlike some business and marketing metrics, understanding conversion rates require some self-definition.

It starts with defining what a conversion is – which can mean different things for varying types of brands and organizations.

You can have more than one type of conversion. As a goal, you can have it factored into a marketing funnel or customer journey. Or, it could be a firm financial metric your business hinges on.

Step one is to clearly define what a conversion is for you.

One of the most common definitions I see relates to someone becoming a lead for a business that is focused on driving leads via its website.

Another applies to ecommerce businesses, where the conversion is the completed sale transaction.

Other common definitions include certain engagement metrics for businesses that rely on ad revenue generated by page views.

Secondary types of conversions get into events, engagement, and other things like email signups that help support funnels, customer journeys, and overall sales processes.

Conversion Rate

Conversion rate is a %.

In high-level terms, it tells you the % of how many people came to your site who took the conversion goal action you defined.

Some sources provide benchmarks for specific industries or areas to help you understand a good conversion rate and offer some objectivity.

I’m not telling you to copy your competitors, but I think if you want to value conversion rate, you need internal and external research to validate where you stand and where you want to be.

Match this up with your persona research, target audiences, marketing funnels, and customer journeys.

You likely know what you want your site visitors and audience to do.

How many of them do you want to do it? How big is the universe of your target audience? What is realistic regarding the number of total visitors you think you can get?

Find answers to these questions along with mapping out your conversion goals and conversion rate goals.

How Do You Calculate Conversion Rate?

Conversion Rate Formula

The formula to calculate the conversion rate is straightforward:

Conversions / Visits* = Conversion Rate

*I have to include an asterisk, though, as some definitions might not be as straightforward.

You could also call these “clicks” or “sessions” or look at them more granularly.

My definition here can be adapted based on the language and definitions used by your analytics platform and your other KPIs.

An example in calculating conversion rate for my site (a marketing agency providing services to clients) with the inputs and calculation:

Getting It Right

Again, conversions are custom-defined by you.

It can be a common conversion goal like a lead form submission, something more secondary, or something more obscure.

That part can be somewhat custom or variable for you as well.

You can look at it as clicks to a website from a specific channel or ad campaign.

You can get really granular with the segmentation of your data, source and channel filtering, and even with the definitions themselves.

That becomes especially variable or custom if you’re tracking specific actions that lead up to a conversion goal and how granular you want to be with it.

Make sure the definition of what you’re counting as a conversion and what you’re counting as the total audience (clicks, visits, or some other “total” metric) is mapped out in a meaningful way.

Why Do I Need To Be Able To Calculate Conversion Rate?

First, where do you measure and track conversion rate? You can use Google Analytics, other analytics suites, or any data you must manually calculate.

Google Analytics

If you’re relying on Google Analytics (GA), you’ll want to ensure you have your “Goals” set up properly and test them. Conversions are reported based on the goals you configure.

Out of the box, Google has no context as to what a conversion is for you and no ability to calculate a conversion rate off of it.

If you use GA, dive into conversion goal configuration and testing to ensure things are in a good place before you trust the metrics you see (if you inherited the setup) or move forward with any measurement and improvement plan.

And, speaking of mapping out – tracking and measurement are critical.

You want to ensure that your tech stack and tools can help you properly track visits, conversions, and the overall conversion rate in alignment with your definitions and goals.

Getting this right is critical, whether it is Google Analytics or third-party reporting tools.

Segmentation & Filtering

Plus, you’re able to then segment at the levels you want to with examples, including:

There are many more segments and ways to filter and slice up conversions and conversion rate reporting.

You want to be able to calculate the conversion rate and get into the details with segments of traffic and your audience to help understand where you can improve.

What Is a Good Conversion Rate?

Calculating conversion rates and having the data is one thing; using it to make improvements is where the real work starts.

Improving Conversion Rates

You can look for improvement in two broad areas, and I strongly recommend evaluating both.

One is sources of traffic and the influences that drive visitors to your site.

That includes advertising, referrals, and any awareness activities and campaigns you have that generate traffic.

The other area consists of what influences the traffic that has already arrived at the site – things like UX/UI evaluation, review of messaging, calls to action, and ways that users navigate through and engage with the site.

Improvement in this arena is often called Conversion Rate Optimization or CRO.

Traffic Sources Optimization

In the case of the traffic you’re sending to the site, you can look at targeting, ad creative, and keywords you’re organically ranking for – the ways that ad targeting and creative provide the first impression or directly funnel traffic into the site.

There are a variety of optimization and refinement tactics to shift your focus to higher quality traffic and aim to increase conversion rate by getting more qualified visitors from external sources that you influence.

Beware, though, that you need to have a good idea of your customer journey and not knock out traffic that is awareness focused or at the top of the funnel (e.g., traffic tied to thought leadership).

Increasing the conversion rate is important, but make sure you segment well enough to not inadvertently stop targeting the top of the funnel, awareness-level visitors, and sources.

Conversion Rate Optimization

Now, onto looking inward at the traffic you already have.

This is where most people start digging into CRO tactics. Web analytics can help you see where people exit, bounce, and stop short of getting to your conversion actions.

Beyond that, great heat mapping and CRO tools will give you insights into UX and UI issues and how people truly engage with your site versus how you intended in your design.

By focusing on CRO and putting a strategy into place, you can evaluate everything from site speed to content, messaging, and UI.

I strongly encourage you to do so.

Conclusion

Conversion rate continues to be a valuable marketing metric.

Understanding it, defining it for your organization, measuring it, and improving it are all important.

Whether you have a small business or enterprise-level website, you likely care about specific conversion goals.

In short – for conversions and conversion rate – understand, define, measure, and improve it.

Yes, we all want more traffic. And maybe a static conversion rate is fine if you add more traffic.

However, wouldn’t you like more traffic and a higher conversion rate?

It is possible to have both, and crucial to understanding what levers to pull to influence it.

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