Conversion Rate

This is a very high-level metric that can be further defined into far more granular ones. Generally, it refers to the percentage of events leading to another event. It is calculated by diving the number of times the goal or destination event (final event) happened by the number of time the source event happened within a given period of time, as follows:

Dest. Event Count ÷ Source Event Count = Conversion Rate

Conversion Rate must be multiplied by 100 to be represented in percentage and is usually much easier to understand and use if the source event occurs more often than the destination event.

In the e-commerce world, used without any prefixes, it usually refers to percentage of Visits that convert to Orders:

Number of Orders ÷ Number of Visits = Conversion Rate (E-commerce)

But it can refer to the Customer/Buyer/Purchaser Conversion rate, calculated so:

Number of Orders ÷ Number of Visitors = Purchaser Conversion Rate (E-commerce)

While the first one is used more often, both are very important in revenue projection when multiplied by Average Order Value. As an example, a website that generated $100,000 of sales through 2,000 orders in a month with 40,000 visits, has an Average Order Value of $50 and Conversion Rate of 5% (which is quite high):

$100,000 ÷ 2,000 = $50 AOV
2,000 ÷ 40,000 = 0.5 = 5% CR
This means that 5 out of 100 visits turn into an average of $50 revenue!

This can then be used to project revenue for a campaign aimed at generating another 5,000 visits, in the following manner:

Number of Visits × CR × AOV = Projected Revenue
5,000 × 5% × $50 = 250 × $50 = $12,500

As mentioned earlier conversion rate is a high-level reference that can be applied to any event that makes logical sense to the business that operates the e-commerce website, below are some examples:

  • To measure immediate effectiveness of our internal site search we can determine what percentage of site searches result in product views: Number of Product Views ÷ Number of Site Searches = Site Search to Product View Conversion Rate
  • To determine the “Add to Cart” call-to-action on our product pages, we can calculate the percentage of product views that result in cart additions: Number of Cart Addition ÷ Number of Product Views = Product View to Cart Addition Conversion Rate
  • To find out how well a product showcase block works, we can determine the percentage of the impressions (number of times displayed) result in clicks: Number of Showcase Clicks ÷ Number of Showcase Impressions = Showcase Impression to Click Conversion Rate

As you can imagine, some conversion rates make far more sense within a specific segment context, for example Product View to Cart Addition Conversion Rate within a category of products and even Visit Conversion Rate for a certain segment such as new visits or those with a browser that does not support JavaScript.

The opposite of Conversion Rate, can be defined as Abandonment Rate and can sometimes suit our reporting needs more appropriately.

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