Conversion Rate

Updated on April 18, 2024
Article byPriya Choubey
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Conversion Rate?

Conversion rate is a marketing tool that determines the percentage of website or online platform visitors who perform a desirable action like making a purchase or signing up, relative to the total visitors count. It gauges the efficacy of a specific goal or call-to-action, reflecting user engagement and behavior.

Conversion Rate

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For eg:
Source: Conversion Rate (wallstreetmojo.com)

Elevating conversion rates can contribute to a more lucrative and enduring business model since such an analysis ensures high revenue generation, enhanced return on investment (ROI), better customer insights, and optimized resource allocation. Moreover, with consistent monitoring, testing, and adjustments based on user feedback and behavior, companies can develop a competent product, service, or customer experience.

Key Takeaways

  • Conversion rate refers to the proportion of the website or page visitors who have proceeded with the demanded call-to-action, i.e., signing up, buying a product or service, etc., out of the total number of visitors reached by such an e-commerce or marketing campaign.
  • The formula is Conversion Rate = (Number of Conversions / Total Number of Visitors) * 100.
  • Conversion rate optimization ensures the success of a marketing strategy or action in seeking engagement or response from the target customers.
  • It varies from industry to industry and business to business but ranges between 2% to 5% for most online campaigns across different industries.

Conversion Rate Explained

Conversion rate identifies favorable outcomes businesses derive when their website or marketing strategies competently convert visitors into paying customers. Thus, keeping track of these rates helps the companies to successfully determine the efficiency of a particular action or campaign in transforming potential leads into active customers or achieving specific goals, such as registering for a service or making a purchase. This metric offers valuable insights into the efficacy of marketing endeavors and facilitates the identification of areas that may require enhancement.

Users often come across various advertisements, popups, and sign-up pages on shopping apps, websites, Google searches, social media, and other platforms. They either proceed with the desired action or decline the call. The number of times one accepts such requests contributes to the conversion rate of that campaign.

However, it has certain shortcomings which cannot be overlooked. While it fails to identify the reasons behind non-conversion, a high conversion rate doesn’t guarantee significant results. Moreover, focusing only on raising conversion rates may lead to short-term tactics, potentially compromising long-term brand image and customer loyalty. It may even lead to ignorance of other vital metrics like customer lifetime value, average order value, and engagement measures. Further, a rapidly changing conversion rate might not always reflect genuine enhancements; it may be due to external factors like seasonality or market volatility.

As per a report, the top 10 business categories across 23 different countries by their conversion rates are as follows:

business categories across 23 different countries

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Formula

Conversion rate is the percentage of the website or other online platform visitors responding to a call-to-action out of the total number of users approached through such a campaign. The standard formula for determining the same is:

Conversion Rate = (Number of Conversions / Total Number of Visitors) * 100

Also, multiple conversion rate calculators are available online to track the campaigns’ performance and their impact on the target audience.

Examples

Now, moving on to the cases of determining the conversion rate, let us discuss the following scenarios:

Example #1

Suppose a news website has 100,000 monthly visitors. It runs a campaign to make the visitors subscribe to its weekly newsletter at an annual charge of $60. If 2500 visitors paid for the subscription, then let us determine the conversion rate. Also, if the campaign cost was $100,000, let us also determine the successful call to action.

Solution:

Conversion Rate = (Number of Conversions / Total Number of Visitors) * 100

= (2500 / 100000) * 100 = 2.5%

Also, the total subscription collected = 2500 * $60 = $150000

Profit = Total subscription collected – Cost of running the campaign

= $150000 – $100000 = $50000

Hence, it was a successful campaign with a 2.5% conversion rate and a profit of $50000.

Example #2

A recent report by Deloitte Digital and Snap Inc. suggested that Augmented Reality (AR) can be a game changer when it comes to enhancing the conversion rates of websites. According to the report, brands witnessed an approximate increase of 94% in conversion rate thanks to AR tools. Companies can make use of AR to create content and web pages that are more attuned to customers’ preferences thereby developing an overall greater customer experience.

Augmented Reality tools in digital marketing have witnessed a surge in recent years, paralleled by an increase in the number of website visitors who advance their interest in calls to action. The recent digital boom has further underlined the impact of AR innovations on branding and marketing.

How To Increase?

Conversion rate optimization is a rigorous practice of enhancing the marketing strategy, website functionality, and user experience to maximize visitors’ responses. Here are several tactics to consider:

  1. Thoroughly analyze the target audience to customize the ads, messages, and offerings according to their preferences and requirements.
  2. Ensure that the calls to action (CTAs) are visible, unambiguous, and persuasive, guiding visitors toward the intended action.
  3. For e-commerce platforms, simplify the checkout process to minimize friction and facilitate seamless purchases.
  4. A slow-loading website can discourage users from remaining and completing actions. Prioritize optimizing loading times to heighten user satisfaction.
  5. Conduct A/B testing with diverse layouts, designs, headlines, and CTAs to determine the most effective options for the audience.
  6. Display authentic customer reviews, testimonials, and trust badges to establish credibility and foster trust among visitors.
  7. Ensure that the website is responsive and user-friendly on mobile devices, as increasing users access websites via mobile platforms.
  8. Tailor the content and offers to individual users based on their behaviors and preferences to enhance relevance.
  9. Provide high-quality, valuable, informative content that addresses user needs and showcases the company’s expertise in the industry.
  10. Utilize exit-intent popups to capture users’ attention on the verge of leaving the site, providing them with incentives to stay or engage.
  11. Segment the email list and marketing campaigns to send targeted messages to specific user segments.
  12. Optimize the landing pages to align with user expectations and effectively convey a focused message.
  13. Minimize the number of form fields and make submitting information effortless for users.
  14. Provide real-time assistance through live chat support to address customer queries and resolve concerns.
  15. Utilize targeted advertisements to re-engage users who have previously visited the site but didn’t complete a conversion.

Conversion Rate vs Click Through Rate vs Win Rate

Conversion rate, click-through rate (CTR), and win rate are essential metrics used in distinct contexts to evaluate the success of marketing campaigns or sales efforts. The three parameters vary from one another in the following ways:

BasisConversion RateClick-Through RateWin Rate
DefinitionConversion rate is the proportion of users who undertake a desired action, like completing a purchase, subscribing to a newsletter, or submitting a contact form, out of the total number of visitors or interactions.CTR is the percentage of the overall ad clicks to the total ad impressions.Win rate quantifies the percentage of deals or opportunities a sales team successfully closes compared to the overall number of pursued deals.
IndicatesAudience’s engagement and responsiveness to a particular call-to-actionEffectiveness of an advertisement or link in generating clicksThe efficiency of the sales team in lead generation
FacilitatesComparative analysis of different marketing strategies and practicesA product or service’s marketabilityIncreasing sales volume
FormulaConversion Rate = (Number of Conversions / Total Number of Visitors) * 100Click-Through Rate = (Clicks / Impressions) * 100 Win Rate = (Number of Won Opportunities / Total Number of Opportunities) * 100
Commonly Used in E-commerce and marketingOnline, web pages and email advertisingSales
Applicable atMiddle and bottom of the sales funnelTop of the sales funnelBottom of the sales funnel

Frequently Asked Questions (FAQs)

1. What is conversion rate optimization?

Conversion rate optimization continuously enhances the user experience and marketing performance to increase the number of visitors who perform the desired call-to-action.

2. What is a good conversion rate?

The conversion rate depends upon the type of action desired and the kind of product or service, and industries like consumer goods have a high rate. Still, industrial equipment has a comparatively poor rate. However, on the whole, a favorable rate is somewhere between 2% to 5%.

3. Is PayPal’s conversion rate good?

Here, we are talking about the currency conversion rate employed in the foreign exchange market. PayPal’s currency conversion rate is relatively high; it charges users at a retail exchange rate with an additional 4.5% conversion service charge.

4. Why is my conversion rate so low?

A low conversion rate can signify many things, such as poor user experience, weak website design or inadequate product offering. The seller can work on the quality of their website design, content and call-to-action strategies to improve the rate.

This article has been a guide to what is Conversion Rate. Here we explain its formula, how to increase it, vs click-through rate and win rate, and its examples. You may also find some useful articles here:

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