Across the industries, one of the most important KPIs (key performance indicators) for marketing is the conversion rate; aka the number of people who got to know about you vs the number of people who actively engaged with your brand. When it comes to website, conversion rate is simply the percentage of people who have taken a desired action. Depending on the website, your industry and your goals, the desired action can be anything; purchase of products, downloading an eBook, signing-up for newsletters or filling up the lead capture form.
Why Conversion Rate is the Most Important KPI for Your Website?
Well, conversion rate is undeniably THE most important KPI for any website or landing page. But, unfortunately, most small and medium businesses stop at Search Engine Optimization (SEO). Don’t get me wrong; SEO is crucial for your website. In fact, good SEO ensures that your website is visible to a greater number of target audience. But web traffic as a KPI is not the measure of success at all. In fact, it is one of the most hyped vanity metrics.
No matter how much traffic you are getting on your website, it is of no value, as long as the visitors are not taking the next step forward. Let’s suppose, you own an eCommerce website for selling trekking gears. And this is how the figures look like for two consecutive months.
In Month A you’ve definitely got more visitors, but in Month B you’ve closed more sales!
Now, if you have only been tracking your traffic, your marketing team will have the wrong notion that Month A was more successful compared to Month B.
This can prove to be rather costly, if you are spending on various campaigns to bring in traffic to your website. More traffic means more pay-per-click dollars; but if they do not get converted into sales there goes your ROI, straight down the drains!
The only way to maximize your ROI is to dig a bit deeper than traffic and measure the conversion ratio for your website.
How to Calculate Your Conversion Rate?
If you are trying to calculate your conversion rate for the very first time, then it can be a little confusing in beginning. So, here’s the basic conversion rate formula:
Conversion Rate = Total Conversion/ Total Number of Traffic
Let’s take an example:
If in a month you’ve got 1000 visitors on your website and 71 sales, then your conversion rate is:
(71/1000) x 100% = 7.1%
How Conversion Rate Helps in Planning Campaigns and Predicting Profit?
While conversion rate is obviously crucial for measuring performance for your websites, landing pages or even different channels of driving traffic; it has far greater implications in your overall marketing strategy.
Before we start talking on this, let me ask you this simple questions: how do you plan your digital marketing campaigns? Do you have any idea about the number of leads you may get in a month from your website? Do you have any clue about the net profit you may achieve from your eCommerce store next month? If not, it’s high time you start working on a ROI forecast and plan your marketing plans accordingly.
A good marketer or a business owner must be able to foresee the likely performance of a campaign and then decide whether to proceed with the present plan, fix it or leave it altogether. And, no, you definitely do not need a crystal ball for it!
Let’s take an example from our trekking gears business and see how conversion rate can help you here!
So, you’ve launched a new type of trekking shoes and want to market it aggressively. You can either go spend a fortune on PPC campaigns and hope to get decent return OR you can plan your campaign based on solid insight.
Here’s how you can plan your campaign:
Net Profit from Each Pair of Shoes Sold: $50
Average Conversion Rate of Your Website: 3%
Number of Orders = Number of Visitors X Conversion Rate
Let’s suppose you are expecting 1000 visitors on your website in a month and expecting a conversion rate of 2% (it’s better to consider a lower rate for planning your campaigns, this way you cannot over estimate).
So, the figure will be
Number of Orders= 1000 X 2% = 20
Gross Profit = 20 X $50 = $ 1000
So, if you set a budget of $500 for your PPC campaign, then your Net Profit will be $1000- $500 = $500.
How it helps?
- You have a clear idea about the kind of profit you are more likely to earn at the end of the month.
- You know the variables for increasing your profit. So, depending on your target figure, you can adjust how much budget is needed.
- Last but not the least, by closely monitoring the conversion rate, you can get a clear idea about which campaigns/channels are working for your business. This way, you can pull budget from the least performing ones and invest on the one that are more likely give you better conversion.
Better than investing blindly, right?
Tools that Help You See the Conversion Rate of Your Website
The first step towards understanding and analyzing your conversion rate is to implement a data-capturing tool on your website. There are quite a few analytics tool in the market that offers different level of insight on user behavior on the website.
You can use a purely conversion analytics tool such as Mixpanel or KISSMetrics, or can go for a heatmap tool like CrazyEgg. However, my personal favorite remains Google Analytics. Google Analytics is not just a reliable one, it is also completely free. But, be warned, conversion rate is not a default report in Google Analytics. When set up properly, the powerful tool will not only give you the conversion rate, but will show the complete step by step conversion funnel (as displayed below).
This conversion funnel not only gives you the conversion rate, but also offers much more powerful insight on the website entry and exit points, step-by-step conversion rate and an overall idea about your visitors’ journey.
You can use these insights for actually improving your user experience and ramp up your conversion rate!
According to a report by WordStream, across industries 2.35% is the average website conversion rate today. However, top 10% businesses usually have 3 to 5X higher conversion rate than the average. (No wonder, they are the top 10%)
So, if you aspire to be among those 10%, it is crucial that you start tracking your conversion rate and take proactive steps towards improving it.
Want to know more about your conversion rate and optimize your website to get better result? Get in touch with our Conversion Ratio Optimization (CRO) experts today.