Demystifying the Conversion Rate

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Conversion rate optimization has grown to buzz word status within the online marketing industry. Some of the original “conversion marketing” firms like Future Now, Inc. has spent significant time over the past ten years educating the market about the importance of improving conversion rates. At a time when “getting traffic” was the primary focus, most companies overlooked the value of conversion rate optimization.

Back in 2003, my company figured out that conversion rate optimization was crucial after experiencing an “ah-ha” moment while operating hundreds of paid search marketing campaigns. Even though our clients were happy with us attracting qualified “traffic” to their site that produced some leads/sales, there seemed to be a major disconnect.

Our clients were asking for more “traffic” and assuming that meant more actions (e.g. sales, leads, opt-ins.) As for-profit businesses, what they ultimately wanted was to make more money (ideally profits.) Yet after experiencing this thinking pattern, it became clear that more traffic did not equate to more actions even though it is the assumption most clients (and businesses in general) hold. The “numbers” game played out by most salespeople has its limitations.

Ultimately, the “more traffic equals more sales” disconnect was closed by adding conversion rate optimization. By focusing on attracting qualified visitors (which paid search marketing is a great tool for) while concurrently working on conversion rate optimization, greater financial results were achieved. The disconnect that “more traffic equaled more sales” was pieced together by inserting a focus on achieving “conversion” between a visitor and a sale.

Today, I am surprised by the number of “conversion rate optimization” service providers advertising their solutions. It seems that with so much competition and so many “opinions” that companies are getting confused about what really is conversion rate optimization. More so, I think companies misunderstand the connection (or correlation) between conversion rate optimization and generating more sales or more leads.

Here are some things to consider when you think about conversion rate optimization:

Consideration #1: Improving Conversion WITHOUT Increasing Sales Volume

Let me start by stating that a higher conversion rate does not positively correlate to higher sales volume. What? If you thought differently than you may be misunderstanding the conversion rate calculation.

You can actually increase your conversion rate by reducing the number of visitors to your website. For example, if 10,000 visitors (via paid search) arrived on your website and 1,000 bought, you achieved a 10% conversion rate (using a simplified conversion rate calculation of sales/visitors.)

If you were tracking individual keyword performance for your paid search campaigns, you could remove the poor converting keywords and reduce the visitor number. So assume you did remove the poor converting keywords and it reduced your 10,000 visitors to 7,000 and you still generated 1,000 sales from your high performing keywords (which is typically the case if you apply the 80/20 principle to your paid search campaigns.) Now your conversion rate climbed to 14%. You improved your conversion rate but you didn’t add a single, incremental sale. You DID reduce your costs (assumingly increased your profits) by eliminating your poor performing pay-per-click charges but you didn’t increase your sales volume.

Consideration #2: Conversion Rate Optimization isn’t always website design

Besides proving this “consideration” in the above paid search example, you can also add a free shipping with conditions offer on your website and increase sales without ever touching a single design element (besides adding some text or banner on your website and paid search ad to promote the free shipping promotion.) I have seen many website design companies start offering “conversion rate optimization” services. Certainly high-quality design (that integrates IU, visual hierarchies, usability, etc.) is a “factor” in building a high performance website; it is NOT the sole factor.

My example about free shipping is not related to design at all. Instead strategic decisions like free shipping, up-sells, pricing, promotions, packaging, customer service and so on are a function of market strategy. Therefore market strategy along with advertising, and website technology and design are all factors influencing conversion rate optimization.

Consideration #3: The quality of the visitors directly influences conversion rate optimization

Following through with the market strategy stated in consideration #2, customer segmentation (targeted advertising) is a fundamental component of conversion rate optimization. If you are attracting any type of visitor from your advertising channels, whether qualified or not, your conversion rate will be affected. Conversion rates increase when the visitors you are attracting are qualified to purchase the product or service you are offering.

You may be thinking, “Well why would a visitor come to my website if they weren’t interested in buying?” Good question.

First, especially with SEO and how people use search queries, you website may appear for a keyword query not directly relevant to the search intention and your listing may be vague where the visitor simply clicks through to see what’s on the other side. This happens on my website with natural search traffic because I write about performance metrics such as cost per action, return on investment, customer lifetime value and so on. Marketers seeking financial metrics (not for a web business) click through to my site. These visitors typically bounce quickly once they realize that my site doesn’t offer relevant information about their specific need.

The quality and targeting of your advertising plays into your conversion rate optimization. Therefore, how you are generating traffic, where you are generating traffic, and what keywords are sending visitors to your website all affect you conversion rate.

Consideration #4: There are many ways to slice and dice a conversion rate

This is a given for any one who relies on the Web Analytics Association definition of a conversion rate because they account for a “visitor segment” within the calculation. Unfortunately as I did above, most companies employ the over-simplified conversion rate calculation of actions/visitors. Analytic programs like Google Analytics or web statistic programs provided by many web hosts for free use all sorts of values when calculating figures like “visitors”. For example, some include search engine crawlers and robots into the “visits” figure which completely throws off the conversion rate. You only want to use a figure that most closely evaluates performance among actual “buying units” – real people capable of making a purchasing decision. Unless something changes (iRobot-like) I don’t see search engine crawlers or robots being considered a “buying unit” any time soon. So, you need to be careful with the figures you use for visitors.

More importantly though, you want to calculate conversion rates for each visitor segment. Now unfortunately for simplistic sake, how you define your visitor segments is dependent on your customer knowledge and analytic objectives. But for me to explain further, I will just use different advertising channels as a visitor segment. So I want to calculate conversion among paid search, natural search and email marketing. Once I understand their individual conversion rates, I will then define conversion rate optimization strategies to address each one individually. How I get more sales from my paid search visitors may be different than how I generate more sales from natural search ones. Why? Because a visitor who clicks through a natural search listing may behave differently than a paid search listing clicker. At the same time, they could also share commonalities which are something you try to analyze and determine through your website analytics program.

The point being is that improving conversion isn’t always redesigning an entire website. It may involve pinpointing visitor segments and improving just the design technology or market strategy aspects affecting their experience and causing them not to move forward into a purchasing decision. There is simply more to maximizing business value than conversion rate optimization especially for small to mid-size businesses. It’s requires a holistic approach focused on advertising, website )includes design) and market strategy.

About the Author

Kevin Gold is Director of Internet Marketing at iNET Interactive, a social media company operating prominent online communities for technology professionals and technology enthusiasts. Kevin is a frequent contributing author to multiple publications including Search Marketing Standard, Practical eCommerce, DIRECT, Entrepreneur.com, ConversionChronicles.com, About.com, and On Target (Yahoo! Search Marketing newsletter).

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3 Comments

  1. Kevin, Nice article! Thank you for recognizing us. We are still trying to educate the market. Traffic is simply sexier than conversion. Jeffrey Eisenberg, CEO of Future Now Inc.

  2. Great introductory article. To your comment Jeffrey: Well, traffic is much easier to understand for masses. A single parameter that they can correlate with. So long as people see a positive slope between traffic and sales, they are content with pushing traffic. Huge opportunity loss, indeed.

  3. Faith

    Sorry to say that I was among mass of people misinformed on conversion rate parameters. Actually, I never considered conversion rates a mystery, but now have a more accurate method to process the data. Much Thanks, Faith