How to Measure Conversion Rate
I was reading Avinash’s Web Analytics 2.0 last night (again!) and like any good book, you often see things that you didn’t catch the first time around.
One bit that jumped out at me this time around was talking about how to best measure conversion rates. One way that many tools do it by default is to measure “purchases” – divided by – “visits”. (conversion rate = purchases/visits) Avinash talks about how this may be OK for a site where typical customer behavior is to come once and convert, but for that the majority of websites, it is not really the best way to measure.
A Better Way
The case for most sites is that you visit to do some initial research with no intention of buying anything right then. You are just checking things out. You look around, then maybe pop over to another site (competitor’s?), then maybe come back later that day, or tomorrow, or on Saturday, etc. You talk to a friend, a co-worker, your spouse – each time bouncing back to the site to find the answer to another question. The point is, depending on what the product/service is, we may have 5-20+ touch points with the website before we decide to click “buy now”. Since this is the case, measuring conversion by “visits” will skew your data. Measuring conversion by looking at “purchase – divided by – “visitor” ( conversion rate = purchase/visitor) will give you a much clearer view of your true conversion rate.
Conversion Rate Formulas
|This measure may skew your data, especially in the case where a visitor comes to your site multiple times before making a purchase.|
|Using visitors as your denominator can be a much cleaner way to measure conversion rate, since it removes the number of visits, and focuses on the individual visitor.|
That is not to say we should disregard the number of visits it takes for a visitor to close the deal. That would border on heresy. We are simply talking about an optimal way to measure conversion rate.
To truly get “insight” it is critical to look at the behavior of visitors on the path to purchase. That is like the rainbow pointing to the pot of gold. We absolutely want to know what our visitors do, and don’t do before clicking that buy button.
Probably the best way to look at that is by segmenting your visitors. What is the behavior of visitors that come from each of the following sources:
- Paid Search (PPC
- Banner Ads
- Email campaigns
- Returning Visitors
- Visitors from Brazil, UK, Singapore, Germany
Maybe some of them add things to their cart and make a purchase much quicker than others. Maybe they like to be “courted” in different ways. Maybe visitors from Brazil and the UK are focused primarily on price and free shipping. Visitors from Singapore may be more focused on the branding and status ascribed to them by your product.
If you are showing an ad for “free shipping for first time visitors” on your site for everyone that is not helping me if I’m a returning visitor. Yet many websites do this – someone with marketing comes up with a great idea, but they forget that visitors are from a variety of segments and often require different approaches to be successful.
Knowing your “true” conversion rate, and “personalizing” the way your site displays and courts your individual segments is critical for taking your web strategy to the next level.