What is the use of visitor tracking and click tracking if your visitors won’t buy any service from you? That’s why you should know how to calculate conversion rate, the magical number that represents the effectiveness of your marketing costs.
In this article, we’re going to discuss the meaning of conversion rate, how you calculate it, and most importantly, how you can improve your conversion rate.
What is the Conversion Rate?
When we say it’s essential to know how to calculate conversion rate it’s because the conversion rate shows you the percentage of visitors to your website or landing page who convert (aka do what you want them to do).
It might differ depending on the type of business and goal you have in mind, but some instances of conversion are:
- Making a purchase
- Signing up for your newsletter
- Filling some form
- Creating an account
- Downloading some content
- Upgrading the service
What Are Conversion Types?
Let’s take a look at the types of conversions:
1. Macro Conversions
Macro conversions are typically stated as website goals, allowing conversion rates to be used to assess a website’s success. The economic performance of a website can be measured using this goal statement and a tracking system. Additionally, specific user actions represent conversion rates.
Any other conversion or action to reach the main selling goal can be categorized into micro conversions. A conversion is a measurable action that significantly progresses a potential customer towards becoming a paying customer.
Why is Your Conversion Rate Important?
You can use conversion rates to assess the effectiveness of your business efforts. In addition, you can evaluate the effectiveness of your site or app and discover areas of improvement by learning what percentage of your users complete the goals that drive your business.
Closing more sales with the same amount of traffic will improve your conversion rate. Imagine you spend $1,000 per month on advertising to get 500 visitors to your site. If you are planning to double your conversion rate through ads, the costs will double too. So, instead of spending more on ads, you can either reduce your ad budget and spend more on other strategies or invest the extra cash into new ad initiatives.
How to Calculate Conversion Rate?
Conversion rate is calculated by dividing the number of conversions you get in a given time frame by the total number of people who have visited your site or landing page and multiply it by 100.
This is the overall conversion rate, but the beauty is that you can calculate it in any specific area, such as:
- Overall conversion rate: How well does your website convert traffic from any source?
- Marketing channel conversion rate: Is Google Ads traffic or Facebook Ads traffic more likely to convert?
- Page-level conversion rate: Which of these pages is better at converting traffic?
- Campaign conversion rate: Did my targeting changes improve anything?
- Individual ad conversion rate: Do I need to change my ad copy? Does this ad drive more qualified traffic?
- Keyword conversion rate: Which keywords deserve more budget?
We can make this list longer and longer for any specific area of business and its impact on conversion rate, but it’s enough to get the point across.
Now, how do we calculate the conversion rate if the same person converts multiple times? As discussed above, the conversion rate is the number of conversions divided by the number of visitors. So, to see what percentage of visitors converted (regardless of how many times they converted), you divide converting visitors by total visitors and multiply by 100. We typically call this the “click conversion rate.”
Conversion Rate Calculation Example
Okay, now take a look at this example and try your hand at conversion rate calculation:
Question: Imagine that you own an online store selling watches. You check your analytics and realize that in the last month, 60,000 people have visited your website.
You go on and check the number of people who have made a purchase in the last month and the number is 1,500. How do you calculate conversion rate in this case?
Answer: Based on the conversion rate formula we explained above, you first need to divide the number of people who have bought from you (which in this case is 1,500) by the total number of your visitors (60 thousand in this example.)
The number we get from this division is 0.025. Finally, we need to multiply this number by 100 to find the percentage.
So, the conversion rate in this example is 2.5% which is a quite nice conversion rate to have if your website is not called Amazon!
Getting Meaningful Data
When we talked about how to calculate conversion rate, the assumption was that the data was relevant. Relevant or meaningful data is the data that has two factors:
Data should be collected in a period that shows the real information about the business. So, for example, for a small website with 100 visitors in a month, we should take six months to have some data that we can work with.
2. Number of Visitors
If we have a 100% conversion rate, we can assume that something is not right. Because the sample can be one visitor who has converted. But in bigger sample size, the number falls, and that’s why we need a big sample size to measure the actual value of our costs.
What is a Good Conversion Rate?
This is a question we receive fairly frequently — and the true answer is that it depends on your industry, how you’re defining conversion rate, and the nature of your business.
Here’s what Unbounce’s report on 64,000 landing pages claims:
“Generally, a 12% conversion rate is pretty good for lead generation landing pages. And by ‘pretty good,’ we mean you’ll be better than about 90% of your competitors.” Or if we look at Wordstream’s suggestions from Google Adwords, they cite the industry-wide rate to be 3.75%.
Conversion Rate Optimization (CRO)
Now that you know the essentials of calculating conversion rate, we can talk about optimization. Conversion rate optimization involves improving your landing page and website to generate more conversions from your traffic!
Here are some of the technical things you can do to boost your conversion rate:
1. Use CRO tools
Conversion rate optimization can be accomplished with a variety of techniques. User behavior analytics products like WatchThemLive are a great choice because they provide useful insights into customer behavior.
Let’s look at how WatchThemLive can assist you in improving your conversion rate.
This program includes significant features such as heatmaps and session recordings that make it easy to understand user behavior. For example, session recordings will give you a better insight into your visitors’ actions and how your website affects them by showing recordings of their entire journey. This way, you can minimize weaknesses and emphasize the better parts of your design.
2. Create a dedicated landing page
If you are doing any paid advertising (Google Ads, Bing Ads, etc.), you should be sending your traffic to a dedicated landing page. There are many good reasons to do this, but the biggest reason is page optimization. If you’re going to pay to get traffic to your site, you want to send them to a page that is designed to sell.
A Landing page is also the best type of page to leverage in order to optimize conversion rates. So, if you’re still sending your traffic to your homepage, this is the first place I’d start. For more information, check out our post on landing page testing.
3. A/B Test
The easiest way to start doing CRO is the A/B test. If you’ve got traffic coming out your ears, you can do some really cool (and complex) multivariate testing, but for most companies, A/B testing is the easiest and most effective way to go.
To run an A/B test, all you have to do is to set up two different variants of a page and split your traffic between them. Half of your traffic goes to variant A and the other half to variant B.
We have discussed some of the best optimization strategies in another blog post. Click here to see 3 conversion rate optimization strategies to consider.
In this article, we explained what conversion rate is, what types it has, why it’s important, how to calculate conversion rate using meaningful data, and how to improve your conversion rate.
It’s crucial to also note that this is not the only factor that shows the success or failure of your marketing approach. It’s just one of many, but an essential one.