Conversion Rate Explained: Calculation & Significance

If you want to grow your business with digital marketing, tracking your marketing campaign conversions can help you refine your marketing strategies, improve the effectiveness of your content marketing or better identify the behavior of cart abandoners from a Facebook advertising campaign. And with the right web analytics and conversion tracking tools such as Google Analytics, you can turn more of your website visitors into customers.

As a business owner, you may worry about your bottom line. A higher conversion rate means spending less on your marketing efforts while earning more customers. So, it’s a good idea to know what a conversion rate is, how to calculate it, and ways to increase it. Luckily, there are many methods to improve your conversion rate and boost your profits.

What is a conversion rate?

Conversion rate measures the number of users who converted as a percentage of the total number of users that visited your site. The higher your conversion rate, the more effective your content.

In the marketing world, conversions refer to the moment when a user responds to a call to action. That might mean:

When website visitors convert, they should end up in your CRM (Customer Relationship Management) system, allowing you to target them more effectively as they make their way through the marketing funnel. Because each conversion brings a person one step closer to becoming a customer, you want your marketing efforts and public-facing content to generate as many as possible.

Calculating your conversion rate

Figuring out your conversion rate is easy. All you have to do is take the number of people who interact with a particular piece of content, like an email or a page on your website, and divide the number of conversions by that total. The total you divide by depends on the type of content you want to find the conversion rate for.

For example, imagine that you just sent out an email campaign to announce the upcoming release of your new product to 10,000 customers who have bought from you before. Of those 10,000 email recipients, 500 clicked through to sign up for pre-order. Your ecommerce conversion rate on that email is 500 divided by 10,000—5%.

What is a good conversion rate?

Your conversion rate tells you, in no-nonsense terms, the efficacy of your public-facing content. If 6% of your website visitors join your mailing list or make a purchase, your website is 6% effective.

But here’s the thing: That’s actually very good. In fact, a “good” website conversion rate falls between 2% and 5% across all industries. Industry-specific conversion rates vary quite a bit more.

Some industries, like industrial equipment, have very low-performing websites. Others, like those that sell electronics or business services, tend to have higher average conversion rates. So if you’re inclined to see where you fall, do some research and make sure you’re not comparing apples to cars.

Why conversion rate matters

To determine how effective your marketing efforts are, you have to know how many people are responding to them. Because conversion rate compares the number of customer responses to the total number of contacts, it’s one of the most useful and accurate metrics.

Think about it. If you had 50 people sign up for your mailing list last month, your first instinct may be to celebrate and take the afternoon off.

However, you may rethink that response if you discovered that those 50 signups came from more than 50,000 people who visited your website. That’s only a 1% conversion rate, which means it’s a good idea to start tweaking your content.

Conversion rates also provide data about whether your segmentation efforts are successful. Knowing your conversion rate allows you to create better marketing campaigns for social media and other channels to target specific users based on different categories, such as location, interests, and more.

Conversion rate and ROI

A good conversion rate means a strong ROI, or return on investment.

Let’s say you spend $2,000 per month on content that ordinarily gets you 20,000 readers and 500 click-throughs. You now have a conversion rate of 2.5%. You’ve also essentially spent $4 for each of those conversions.

However, if you manage to get 800 click-throughs the next month, your conversion rate will have increased to 4%. And if your budget hasn’t changed from $2,000, each conversion has only cost you $2.50, compared to $4 the month before. You’re in a better place because you’ve gotten more revenue without increasing your spending.

If your conversion rate decreased, on the other hand, your ROI would likewise decrease. Each conversion has become more expensive. If this happens, it might signal the need to change your marketing strategy.

How to improve your conversion rate

The important thing to remember is that we can all get better. And if you’re looking to improve your conversion rate, you can try conversion rate optimization (CRO). Put simply, that means assessing why your site or content isn’t converting, and then figuring out how to solve the problem.

Here are a few ways you can assess your content to optimize the conversion rate.

A/B testing

Most CRO projects involve a process called A/B testing. Also known as bucket testing or split testing, it compares 2 (or more) versions of a web page to see which gets more conversions. Here’s how to do it:

1. Decide what conversion behavior you want to test. Do you want to measure purchases? Mailing list signups? Promotional email click-throughs? Remember to focus on just one variable, or else your results will be muddy and hard to understand.
2. Find out where you’re losing your visitors. Use whatever analytic tools you have at your disposal—Google Analytics, user behavior tests, etc. Are your visitors abandoning their shopping carts? Or are they failing to get to their carts in the first place?
3. Come up with a list of potential changes that might fix the problem. Maybe your “add to cart” button should be bigger or more prominently placed, for example.
4. Determine how many changes you want to test at once and which you want to test first. You might decide to start with the ones that are the most straightforward to implement, or with the ones that you think will have the biggest impact.
5. Get your hands on an A/B testing tool, An A/B testing tool which will make the changes you want and send each visitor randomly to one version or the other. The original site will be the control and the new one will be the variation.
6. Decide how long you’ll run the experiment. This will depend entirely on how long it usually takes to get conversions. If it usually takes a week to get a handful of conversions, let the test run for a month. You want to make sure your results are statistically significant.
7. Analyze your results. If your variation worked, implement it. If not, change your approach. If you’re not sure, run the test again. Inconclusive results may be a sign that your A/B test hasn’t had enough time to create meaningful data.

You can repeat this process as many times as it takes to get the conversion rate you want. There are dozens of elements on any website that you can test, from headings and subheadings to social media links and call-to-action buttons. Even within these categories, there are multiple variables you can test: font size, font color, button placement, background color, etc.

Large scale vs. small scale testing

The changes that you test can be as major as a total page redesign or as minor as a different font for your call-to-action button. It’s your choice, but keep in mind that, when you test a lot of changes at once, it’s harder to tell which ones actually are having an impact.

Let’s say your website is only converting at 1%. Do you test a complete overhaul of the site or make some minor changes?

Complete overhaul:

You invest time and money in developing a brand new landing page with all of the latest features. Everything is totally new—graphics, text, font, structure. You go live, and in a month you’re converting at 3%.

The pros: You got a 200% increase in conversions with just one round of testing.

The cons: It’s possible you could have achieved the same results with a couple of simple changes. You have to decide—do you run more tests to narrow things down? If so, do you do it with your new site as the control or go back to the old one?

Minor changes:

You try a few small changes before investing in an overhaul. First, you put a “join our mailing list” option in the sidebar. You do an A/B test on it and find out that it brings your conversion rate up to 2%.

It’s a good start. Next, you have your designers change the coding so that the mailing list call to action stays on the page when you scroll. That brings your conversion rate up to 2.5%.

You’re getting close to that 3%, and with much less of a cost outlay. Making another small change, like replacing your stock photos with infographics, might bring your conversion rate even higher.

The pros: It costs much less to make a few small changes than to create a new website or do a major redesign at once.

The cons: Multiple rounds of testing can take a long time, depending on how long you run each variation to see results.

Tips to boost conversions

If you’re not sure which elements to test, trying to boost your conversion rate can feel like throwing things at the wall and seeing what sticks.

Use more dynamic language in your calls to action. Active verbs, like “buy” or “join,” inspire visitors to do something. You can also try phrasing the calls to action from the visitor’s point of view—“Yes, sign me up!” This can get them fired up and make them feel connected to your site.

Address pain points and highlight solutions. Be very clear about how trying your product or service will benefit your visitor. (Even better, show them why they can’t afford not to try it.)

Add customer testimonials and reviews. Research shows that the overwhelming majority of consumers trust online reviews as much as personal recommendations. And for good reason—these make your product or service seem less risky by demonstrating that your business understands the importance of customer service. Add them to your email signup page and even your homepage.

Make sure there is an email opt-in or “shop now” link above the fold. Put it right in front of your users’ eyes. This will invite users to act quickly, rather than waiting till the end of your blog post or landing page.

Don’t make visitors fill in too many form fields. If your goal is to build your email list and get more signups, just ask for their emails and maybe their names if you want to personalize your messaging. More form fields can exhaust users and even feel intrusive.

Remove distractions. That doesn’t mean deleting everything other than your “buy now” button. Design still matters. But get rid of extra calls to action, extraneous links, and menu items that don’t lead to conversion.

Create special landing pages for your paid advertisements. People who click on those links will be looking for something specific. You want to make sure they find it.

Add some incentives. Different ones work for different audiences, so you might have to try a few—bonus downloads, emailed coupons, or even free webinars. Send different offers to different groups of potential customers and see what works.You can also use customer surveys to find out what types of incentives resonate with them the most.

Start increasing your conversion rate

You only get 1 chance to make a good first impression. And when that first impression can mean the difference between winning or losing a customer, you want to do everything in your power to make it as strong as it can be. Increasing your conversion rate can improve your bottom line and help you better predict customer behavior. Meanwhile, tracking your efforts can ensure you’re making the right decisions to increase sales and earn more loyal customers.

With Mailchimp’s A/B testing tool, you can begin measuring the effectiveness of your campaigns and find ways to increase your conversion rate. Start converting customers into lifelong fans today.

Key Takeaways

• Conversion rate is the percentage of user actions taken after total clicks and is calculated as clicks/actions.
• A higher conversion rate means a more successful online marketing campaign and lower marketing costs per customer.
• A good conversion rate varies widely by industry, with an average range of 2%-5%.
• Conversion rate optimization (CRO) techniques include A/B testing, addressing user pain points, and simplifying forms to boost conversions.