Conversion Rate Definition: How It Works and Why It’s Important

Knowing and tracking the conversion rate of your e-commerce business would show you new perspectives on how your business is doing.

But what exactly is conversion rate and what does it say? How do you come up with it? Is there any way for you to do it easily?

In this article, we’ll look at the definition of conversion rate, how it works, and why it’s important for your business. Let’s start!

What is conversion rate?

Conversion rate is an important marketing indicator that tells you the ratio of the website visitors to the number of people who took action on an offer you presented.

What is conversion rate?

Conversion doesn’t always have to be a sale or a transaction. It could be anything that’s measurable that would help potential customers progress on their journey towards becoming a paying customer.

Conversion comes in many forms like:

– Webinar registration

– Chat engagement

– Form submission

– Email signup

Basically, a conversion rate refers to the percentage of people who took the desired action. But why is it important? Here’s the simple reason:

Knowing your own conversion rate would help you leverage your current website traffic and optimize it to its fullest. You can’t optimize your conversion rate if you don’t have a baseline of your own conversion rate.

More importantly, once you start optimizing it, you would have a better grasp of your customers. You would have a better understanding of who your customers are, what they want, and what makes them tick. As what Kate Zabriskie said:

Kate Zabriskie on customer perception

That being said, you need to know how to calculate the conversion rate to understand it better.

How to calculate the conversion rate?

Calculating the conversion rate is easy and doesn’t need any mathematical prowess.

Here’s the classic conversion rate formula:

conversion rate = (conversions/total number of visitors) x 100

In words, all you have to do to get the conversion rate is divide the number of conversions with the total number of visitors and then multiply the quotient by 100 to get the percentage.

Let’s try it:

A content marketer is launching a blogging course in a few weeks. Part of his strategy was to invite people from his email list to a webinar. He has 7,000 people on his list and around 948 of them registered for his webinar.

Using the conversion rate formula, we get:

conversion rate = (948/7,000) x 100 = 13.54%

This works well for the example we used. However, there’s a potential problem when the conversion rate has something to do with the website itself due to automated bots and repeat page impressions.

Here’s a more accurate conversion rate formula:

improved conversion rate = (conversions/unique visitors) x 100

Using this improved conversion rate formula, you would get a more accurate conversion rate with only one conversion unit per unique visitor.

Here’s a nice graphic about conversion rate formula you can download:

Classic Conversion Rate Formula and Improved Conversion Rate Formula

If you don’t like doing the computations yourself, there are free conversion rate calculators available online that are easy to use like the ones from:

GIGA Calculator


Marketing for Success

Here’s how easy it is to use GIGA Calculator looks — write the number, click a button, and there goes your conversion rate:

GIGA Calculator’s Conversion Rate Calculator

Fortunately, if you’re using some kind of platform, you wouldn’t have to worry too much about tracking your conversions and getting the conversion rate.

Conversion Rate Tracking

Obviously, for you to know the conversion rate of your campaign, you must have a way of tracking your conversions. The good thing is, you can actually do this within most advertising and analytics platform.

If your e-commerce site is connected to the Google Analytics platform, you could see on the dashboard the general conversion rate based on all the goals you have set or the sum of all individual goal conversion rates.

Here’s an example from Hotjar:

Google Analytics Conversion Rate from Hotjar

In the image shown below taken from Autolikes, you could clearly see the reach of the Facebook ad as well as the website clicks the ad got.

Facebook Ad Conversion Rate from Autolikes

You’ve got to have some sort of conversion tracking so you could get your conversion rate. So if your business isn’t connected to an analytics platform, you should set it up as soon as possible.

Brandon Weaver of Instapage has a good answer:

What a good conversion rate is according to Brandon Weaver

A good conversion rate is one that’s higher than you currently have. That’s why it’s important that you have this data about your conversions beforehand. However, it’s also important that you know your industry benchmark so you would have a good idea of how your business is doing in terms of conversions with the rest in your industry.

Here’s a condensed data about average conversion rates from Moz:

E-commerce average conversion rates from Moz

On average, that’s 1.6% or about 160 conversions out of 10,000 people. But take note that conversion rates are affected by many factors, not just on the industry. You would get slightly different conversion rates on Facebook ads, landing pages, webinar registrations, etc.

You can clearly see slightly different figures across different industries as shown by this image below from WordStream for Facebook advertising.

Facebook Advertising Conversion Rate from WordStream

Again, there are a lot of factors that come into play when it comes to conversion rates.

What affects conversion rates?

There are so many things that could affect your conversion rate. Some of the major ones include the following:

1. Copy and Content

This should be a no-brainer, but if your content and copy aren’t designed to convert, then you can’t expect conversions.

According to Sonia Simone of Copyblogger, you need to have these four elements for your copy to be persuasive and help prospects convert:

– What I’ve got for you

– What it’s going to do for you

– Who am I?

– What you need to do next

Persuasion is the key for your copy to convert. Robert Cialdini of Influence at Work revealed the six principles of persuasion: reciprocity, scarcity, authority, consistency, liking, and consensus.

Principles of Persuasion by Robert Cialdini

Also, don’t forget to check your content and copy multiple times — it even helps if you get another pair of eyes to run through it. Make sure too that you check the spelling, grammar, and facts mentioned.

2. Website

If your website gives a bad first impression, visitors would leave right away and not bother to come back.

Look at this:

Lingscars as an example pf a bad website

Will you spend more than 3 seconds on this site? Probably not… Try looking at the site in a large monitor and you would hit the “X” button right away because of how the site’s background would hurt your eyes.

The looks and feel of your website are important — enough not to turn your visitors away. However, what’s more important is the usability of your site: the flow and navigation.

3. Unclear Call to Action (CTA)

Your call to action or CTA is the word, phrase or sentence that encourages your visitor to do a specific action. If your CTA is unclear (or worse, you don’t have one), then tracking your conversion rate is the least of your worries.

For your CTA to be effective, it needs to:

– Focus on value and benefits

– Create scarcity and urgency

– Relate on a personal level

– Spring curiosity

– Minimize risk

Here’s a good example from Lootly:

Lootly’s Call to Action (CTA)

Aside from the psychology and copy of your CTA, make sure your visitors could see your CTA clearly. That means, it must have a good synergy with the rest of your website and design.

4. Social Signals and Customer Reviews

Customer reviews and testimonials help persuade visitors to convert — much more if that “conversion” is a purchase. According to a 2018 local consumer review survey from Brightlocal, 86% of consumers read online reviews for businesses.

Brightlocal’s 2018 Local Consumer Review Survey

These social proof raise your credibility and authority in your visitors’ eyes. You’re now “more believable” because of what others have been saying about your business. Humans are social creatures — the views and opinions of others have a high influence over the visitors’ decisions.

5. Not Optimized for Mobile

More and more people are now using mobile devices to access and visit various e-commerce sites. In addition, some of these sites have corresponding apps for their mobile users.

Take a look at these facts compiled by GoMoxie:

Facts about why e-commerce businesses must focus on mobile app engagement

This means that ignoring mobile users could cost a lot of conversions. As shown above, there’s a 65% average increase in mobile sales in 2016 — and that was years ago.

Here’s a good comparison from Invesp of how mobile retail e-commerce has been doing from 2014 to 2018 by device:

Mobile Commerce Statistics and Trends from Invesp

Being optimized for mobile users carries a lot of weight on how many conversions could occur. But of course, there’s a lot more when it comes to optimizing conversions for mobile — just as much as when optimizing conversions for desktop users.

Bottom line

Conversion rate refers to the ratio of people who did a certain action to the total number of unique visitors. Knowing your conversion rate helps you leverage your site traffic for optimization as well as help you understand your customers better.

Remember: a good conversion rate is one that’s higher than you currently have. And it’s important that you keep on improving and optimizing your conversion rate —including being mindful of the factors that affect your conversion rate.