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Understanding Your Websites' Conversion Rate Can Make or Break Your Online Business

Understanding the conversion rate of your website is critical to your success.

Becoming obsessed with maximising conversion rates can reduce the long term success of your online business.

Sounds contradictory? Well it isn’t really.

But let’s start at the beginning…

What Is the Conversion Rate?

The conversion rate is simply the percentage of visitors who come to your website and complete an action, which could be buying something, signing up to an email newsletter or clicking on an ad.

A conversion rate usually is based on a set period of time which could be a day, week, month or year. The time period is important when comparing conversion rates to measure improvements.

For example, if 1000 people come to your website in a week and 50 of them buy something the conversion rate for those seven days is 5%. If the following week the same number of visitors come, but 60 of them buy something the conversion rate is 6%. This shows a week-on-week improvement of 1%.

Often websites have multiple conversion rates. For example on the SubHub website we have three we measure weekly. The percentage of:

Visitors who sign up for the email newsletter

Visitors who sign up for a free trial of our webservice

Trialists who buy our service

Why Should You Measure Conversion Rate?

If you regularly measure your conversion rate you will clearly know whether the performance of your website is improving or deteriorating. A small increase can have a massive impact on your revenues, and a small decrease visa versa.

For example, if your website has a conversion rate of 2% and it is making $100,000 a year, by doubling it to 4% you would double your revenue to $200,000 a year. Small changes can have a big impact.

How Should You Measure Your Conversion Rate?

Simply use Google Analytics (www.google.com/analytics) or a similar webstats service. They have built in tools that automatically measure your sites conversion rate by simply inserting some bits of code into your pages.

What is a Typical Conversion Rate?

This question is very difficult to answer and you should be wary of generalisations.

Most research has been done on ecommerce websites and here are some of the results:

“The average conversion rate - that is the ratio of orders to overall site visits - is 2.9%.” - Forrester Research, August 2007

“The average US conversion rate for ecommerce businesses between 2005 and 2007 was 2% - 3%” The e-tailing group, April 2007

“The average conversion rate for generating leads, rather than sales, from a website is 5% to 6%” – Practical Ecommerce, July 2007

“The conversion rate of small and mid-size commercial websites, which are under- represented in surveys by Forrester and e-tailing is nearer to 1.5%” - Kevin Gold, Search Marketing Standard, July 2007

Why Should You Treat These Figures With Caution?

It is very dangerous to use generalised figures to work out your conversion rate. The only value they have is to help business planning before a website is launched. You can create a plan that has a range of conversion rates – for example 0.5%, 2% and 4% - to see how the projections change.

Once up and running the only conversion rates that matter are the ones you calculate from your own figures.

What Impacts Conversion Rates?

Everything!

This list is just the tip of the iceberg:

The website appearance – does the website look like its run by a professional organisation?

Ease of navigation – how easy is it to find what they are looking for?

Target audience – B2B or B2C have big differences.

Product description and images – do the descriptions sell the product?

Trust

How the visitor found your site (referral has higher conversion rates than clicks via ads)

Prices – if it is easy to compare your prices with those of competitors for exactly the same product, price is important

Incentives – what incentives are provided to encourage sign-up?

Competition – are there competitors offering the products or service?

Ease of checkout – after people decide to buy, how easy is it for them to process their order?

What is so exciting about working on the web is there are hundreds of small tweaks and changes that can make a difference. When combined they can revolutionise an online business. One webmaster found changing all the ‘buy now’ buttons on the site he managed, from grey to green increased conversion rates by 0.2%. This might not sound a lot, but for this company it increased revenues by over $150,000!

How Should You Use Conversion Rates To Improve Your Online Business?

Conversion rates should not be taken in isolation.

What remains your number one goal is to increase the profitability of your website.

You may find it is easier (and more profitable) to drive more traffic to your website than spend hours trying to improve the conversion rate. Alternatively you might find your website becomes more profitable by turning off expensive marketing such as Google Adwords and just focus on converting more of your free search engine traffic.

Look at your profitability and work back from there to decide what actions and activities will have the greatest positive impact.

Why Can Conversion Rate Obsession be Dangerous?

Many online businesses become obsessed with the single figure, sales conversion rate. This is can be dangerous.

The majority of people, up to 90%, who come to any website do not intend to buy during that visit. Conversion rate obsessed businesses are not interested in these people. They just want to convert more of the 10% prospects in buying mode.

However the 90% are potentially more valuable in the long term.

The majority of this group have probably come to your website for a reason. They have proactively searched and clicked on a link to get there. Therefore they are valuable because:

They could return and become customers

They could blog or discuss your company in forums

They could sign up for your email newsletter

They could tell a friend about your website

They could book mark your site on a social network

If you are going to obsess about anything, obsess about making your website a fantastic resource for every relevant visitor.

Improved conversion rates will follow… I guarantee it!

Conclusion

If you don’t know the conversion rate of your website, you will never know whether the changes you make to your site or offering are having a negative or positive impact. If you don’t know this you can’t continually improve your profitability.

However monitoring conversion rates should not detract from the most important focus of any website owner, which is making your site inviting and useful to every relevant visitor. The majority of visitors who don’t buy on their first visit should still be considered as your sales pipeline for the future.