How to Calculate Conversion Rate: A Simple Guideby Carlin Leung
Originally published on the Quietly Blog
If you’ve spent any time in the world of digital marketing, you’ve undoubtedly heard about the power of the conversion rate. It’s not uncommon to see digital marketers touting the conversion rate as the most important metric to track in order to determine the success of digital campaigns. But what’s actually so great about this metric, and how do you calculate it in relation to your own marketing efforts? Let’s take a look.
What Is a Conversion Rate?
In order to define conversion rate, we must first understand what a conversion is. In the world of digital marketing, a conversion is an interaction a consumer has with your website that contributes to a business goal. Common examples include clicking on a call to action, signing up for an email newsletter, or making a purchase.
A conversion rate, then, is the percentage of visitors that complete a conversion on your site. While it sounds simple, understanding the conversion rate is a great way of knowing whether your website is contributing to your business objectives.
How Do I Calculate Conversion Rates?
To calculate your conversion rate, you’ll need to do some quick maths. The formula for a conversion rate is the number of times a goal is completed divided by the number of people who had the opportunity to complete that goal.
As an example, let’s say you run an e-commerce website. A key conversion for this site would be the number of people making purchases. If you made 100 sales last month, and 1,000 people visited your website, your conversion rate would be 100 / 1,000 = 10%. Simple right?
If you’re using Google Analytics, it’s even simpler. Many of Google Analytics’ default reports, including audience, acquisition and (of course) conversion reports, all show the conversion rate of your given audience segment, channel, or goal, respectively.
If you don’t have conversion set up yet, here’s my guide on setting up conversions in Google Analytics.
Why Do Conversion Rates Matter?
The conversion rate is a metric many digital marketers swear by. One major reason for this is because conversion rates are a great way to more directly measure the impact your website has on your business objectives. While visitors or pageviews may be a good measure of success if your business goals are tied to number of people reading your pages (such as businesses that operate on ad revenue), if your site has a different purpose (such as generating leads or driving sales), knowing your conversion rate is much more helpful.
Your conversion rate can also help you benchmark success for your website. If you’ve changed the layout of your site, or updated a product description, you can measure the change in your conversion rate to see whether that change had a positive or negative impact on your bottom line.
Finally, conversion rates is a great way to compare the value of different audience segments and channels. While it’s tempting to simply measure success with the total number of conversions generated from each segment or channel, doing so would result in some missed opportunities. Let’s look an example:
Let’s say you put $100 into both Google and Facebook Ads. As a result, 1,000 people arrived to your site from Google and 7.5% of those visitors made a purchase (the conversion rate would be 7.5%), and 1,500 visitors arrived to your site from Facebook, 5% of whom made a purchase (5% conversion rate).
Crunch the numbers and you’ll find that 75 people completed a conversion from each channel (1,000 x 7.5% and 1,500 x 5% both equal 75). At a glance, it seems like the two channels are just as good at generating conversions. Nice, right?
What happens when we put in a bit more money to draw in 500 more visitors from each channel? Assuming these conversion rates stay the same, you’d generate:
- (1,000 + 500) x 7.5% = 112.5 sales (38 more than before, rounding up) from Google;
- (1,500 + 500) x 5% = 100 sales (25 more than before) from Facebook.
When you compare the numbers like this, it’s clear that the better investment in this scenario would be Google Ads.
The Bottom Line
As we just saw, conversion rates can help you understand which channels or audience segments warrant more investment, whether that’s ad dollars or time. If you only look at the total number of conversions, you may find yourself stuck investing in the same channels or audiences over and over again, when switching your focus may yield better results.
Of course, like any metric, the conversion rate isn’t a silver bullet, so it’s important to consider other factors in its analysis. For example, distinct audience segments will naturally react differently to calls to action, and the costs associated with acquiring traffic will differ across channels. Even the conversion rate itself doesn’t always stay the same—drawing in more viewers does not necessarily translate to more converting visitors.
In order to accurately assess the performance of your digital campaigns, it’s important to track your conversion rate using a tool like Quietly Insights or Google Analytics. With this data now at your fingertips, you can conduct experiments to see whether new tactics will have an impact on your conversion rate, and therefore on your bottom line.