What is a conversion rate, and what does it really mean for you as a business owner?
In this guide, we’ll break down the definition of a conversion rate, show you the formula for calculating conversion rates, and help you identify whether your conversion rate is low or high.
At the end of the article, you’ll also find a link to our Conversion Rate Calculator to quickly help you unveil this mystery.
The Simplest Definition of a Conversion Rate
A conversion rate is the percentage of prospects or leads that take a desired specific action.
The higher the percentage of people that take that action, the higher the rate. Thus, a this metric is a helpful way to gauge how a campaign, website or business is performing. Easy, right?
Let’s say you have people visiting your online shop and you want them to buy your products. The percentage of those visitors who end up buying from you is your online sales conversion rate.
A conversion rate can be calculated for each step in the sales, trial or lead generation process – like clicking on a paid ad, visiting a specific page, signing up for a newsletter, subscribing to a free trial or making a purchase – as well as for the entire customer journey.
You can even compare these conversion rates before and after making changes to the process or by running parallel campaigns. This will shed insightful information because it allows you to assess the sales funnel performance and identify ways to improve it. And this usually results in increased revenues.
How do You Calculate a Conversion Rate?
This is calculated by taking the number of desired actions or conversions and dividing it by the total number of people involved, then expressing it as a percentage.
Conversion rate (%) = (Number of Desired Actions/Total Number of People) x 100)
Let’s take a look at some examples and tackle its calculation.
Conversion Rate Examples
Practice makes perfect. Let’s review some simple examples.
Online Store Sales Example
Imagine an ecommerce store that gets 100 visitors daily and 3 of them make a purchase. The online shop sales conversion rate is the number of purchases (3) divided by the number of visitors (100), expressed as a percentage.
(3/100) x 100 = 3% conversion rate
Lead Generation Example for a B2B Company
Now, let’s take a look at another example. Say a B2B company like Polycom, that sells the famous triangular conference room phones online, runs a pay-per-click campaign. They get 1,000 leads to visit their email signup page where 584 of them subscribe to download an industry white paper. We know you can calculate this rate blindfolded.
Correct, it equals the number of subscribers (584) divided by the number of Leads (1,000), expressed as a percentage. An impressive 58.4%
What is a Good Conversion Rate?
Now that you know what is a conversion rate and how to calculate it, the natural question that follows is, “Is this a good conversion rate?”
The shortest answer is that what could be considered a “good” rate is relative.
Conversion rates vary greatly by industry, by campaign type, by geo, language and device used. Conversion rates are not the same for ecommerce sites as they are for B2B sites, or for desktop, tablet or mobile users.
Let’s take a look at some stats on what some studies consider a good landing page or website conversion rate.
Across industries, the average landing page converts at a rate of 2.35%, yet the top 25% are converting at 5.31% or higher. Source: Wordstream
Converting at an 8.9% in the healthcare industry would make you a top performer, while in the travel industry, you’d need to climb all the way to a 19.7% to be at the top of the ladder. Source: Unbounce
Currently, Google Ads campaigns have been reporting average conversion rates of 3.17% on the Search network and 0.46% on the Display network. Source: Search Engine Watch.
Here’s something for you to ponder. If your conversion rates are as high as your competitors, will that stop you from working on increasing them?
So, What is a Low Conversion Rate?
In a similar vein, low conversion rates can also vary wildly from one industry to another, and even from one step in your funnel to another.
Are your conversion rates on the low end of the spectrum or very close to zero? Don’t worry. This is just an indication that there is work to be done and changes will be required.
You should also consider that a 1% conversion rate for a high-end, high margin product could equate to significantly more net profit than converting at a 90% on a low-end, low margin product.
If you do notice your business is actually experiencing low conversion rates, you know it’s time for action. Your goal is to have more visitors taking your desired action. That way you can have more leads, more sales, more revenue – and, hopefully, increase your profit margin. Do not hesitate to reach out to us if your business needs help increasing its conversion rates.
Meanwhile, are you anxious to know how your conversion rates are faring? Check out our free online Conversion Rate Calculator.