Website Metrics 101: Conversion Rates

Written by Paul on October 4th, 2008

It’s interesting to watch an increasing number of mom & pop small businesses get online these days. There’s been no shortage of design shops and independent contractors that will charge a few hundred bucks to slap together some images and put up a website for you. Is it really worth it?

Unfortunately, most people have absolutely no idea how to determine whether they actually get any real value out of having a website. Let’s fix that today: read on for a crash course in measuring your website’s success.

What’s a Conversion Point?

Whenever a visitor to your website makes a choice, a conversion point exists that generates two metrics:

  1. Cost of Conversion. For the sake of this article, we’ll skip over this particular metric — just realize that it exists and is an important metric to keep track of when you decide to start paying to generate traffic (via online and offline methods).
  2. Rate of Conversion.

The key is to identify your business’ significant conversion points which, if chosen most often by visitors, will lead to the achievement of your goals. (More on this in future posts.)

Conversion Rate

Google’s dictionary defines a conversion rate as “the number of visitors who took a desired action divided by the total number of visitors in a given time period (typically, per month).”

Formula: Desired Action / Total Visitors = Conversion Rate

For example, if 1,000 unique visitors were driven to your website from a search engine and 10 of those visitors signed up for your newsletter, then your newsletter conversion rate would be 1.0%. (As a rule of thumb, you should be shooting for a conversion rate of at least 2%.)

In general, a conversion rate is calculated whenever a desired action occurs by a visitor to your website. The most crucial conversion rates are those directly associated with the achievement of your business’ goals.

Examples include:

  • A visitor types in their email address and clicks “submit” to join your newsletter.
  • A visitor subscribes to your blog via RSS or email.
  • A visitor clicks their browser’s “back” button to leave your website.
  • A visitor buys your product.

The most important metric: Sales Conversion Rate

For most businesses, sales are the lifeblood of the company. Without them, nothing else really matters anyways.

Formula: # of Sales / Total Visitors = Sales Conversion Rate

For example, if the 1,000 unique visitors generated 20 sales, then your sales conversion rate is 2%.

So, what does this really mean?

Metric Mania

Rather than simply putting up your website and blindly waiting for customers, you should be constantly tracking your conversion rates. (Tip: Google Analytics is a free, easy way to automate the tracking and reporting.)

As a rule of thumb, you should constantly aim for a conversion rate of around 2% (or higher). Anything lower, it’s time to start testing new ideas to raise this number. If you’re already at 2%, it’s time to dig a bit deeper into the newsletter, RSS and other conversion rates and see where things can be improved further.

Spend your the vast majority of your time increasing conversion rates — this is the most effective use of your time. Simplify your decision making: If you’re working on something that isn’t improving your conversion rates, stop and move on to the next thing.

Image Credit: batega

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One Response to “Website Metrics 101: Conversion Rates”

  • Hey Paul! I would also add to this “task completion rate”. We focus so much on conversion rate and bounce rate, that sometimes people come to our sites to get a phone number and leave. They didn’t convert, and they bounced, so we consider that a failure, when in reality, they completed their task successfully. A great tool for this is 4Q (www.4q.iperceptions.com) which was co-developed with Avinash Kaushik.

    Secondly, I started using a ratio I developed for online ad campaigns, like AdWords. You can set up every campaign to not only have that “macro” conversion, but also, smaller “micro” conversions. Things such as typing in a zip code, or printing the page could be a conversion that has value. Figure out all of the various outcomes, or conversions, and apply a value to each one. When analyzing the campaign, and comparing multiple ad groups, take your total value (conversions * value of conversion) and divide it by the dollars spent on the ad group. Now you have something to compare apples to apples across multiple ad groups in the same campaign. I call it the Value/Spend Ratio. Try it!

    — 11/24/08 at 10:14 pm

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