How to Calculate Conversion Rate [Formula Included]
Learn how to calculate accurate conversion rates and use them to drive more sales and profit.
May 16, 2023
Introduction
You've been working hard on your marketing strategy, but how do you know if it's actually working? How can you measure the success of your efforts and ensure that you're getting the most out of your advertising dollars?
Conversion rate is one of the most important marketing metrics you can track. A high conversion rate means you’re spending fewer dollars to acquire each customer. Likewise, if your conversion rate is low, there's room for improvement. But most marketers will tell you that optimization can be confusing and complex. Though most companies understand what conversion rate is, many aren't sure how to this key metric to optimize profitability.
Our brand audit clients often have similar questions about conversions. Here are a few examples:
What is a good conversion rate?
Are conversions only used for sales funnels?
How do you adjust conversion metrics when the same person converts multiple times?
I'll address these questions in this post along with tips on how to improve your conversion rate, a basic conversion rate formula, and what to know when tracking conversions.
Conversion Rate Calculation
We can use a simple formula to calculate conversion rate. Essentially, conversion rate is the percentage of users who have taken a specific action. To calculate it, divide the number of users who took a specific conversion action by the total number of users (i.e., number of people who visited a website, number of signups from a mailing list, or other marketing campaigns).
Conversion Rate Formula
Conversion rate = (conversions / total visitors) * 100%
As an example, if 1,000 people see a paid advertisement and 50 of those people visited your site, then the percentage of visitors to your is 5 percent (50 / 1,000 = .05). This is the ad's conversion rate.
Though it isn't difficult to calculate this metric, it won’t help your company hit sales and revenue goals until you know how to use different conversion rate types.
Types of Conversions and Conversion Rates
Before we go any further, it is important to understand the types of conversions and how conversion rates can be used.
A conversion is an event that occurs when a user in the target audience responds to an offer. There are many types of offers. Requests for free trials, signing up for an email list, or product purchases are examples of offers. So, for instance, if a website visitor clicks on a link to get a free trial, that action is tracked as a conversion.
Conversion rate measures the percentage of prospective customers that respond to an offer over a specified time period. This number gauges the effectiveness of marketing tactics. Here is where the trouble with conversion rate tracking begins. Tracking them isn't difficult, but rates must be based on meaningful data. Otherwise, a conversion rate loses its value.
Not all conversions directly result in a paying customer. In fact, conversion goals can vary, depending on the action you want prospects to take.
How to Define Conversions for Your Marketing Strategy
The most common problem with conversion rate tracking has nothing to do with math. Defining conversion rate is one of the biggest challenges companies have with the campaign conversion rate metric.
The definition of a conversion will depend on what you’re trying to accomplish. It is possible for one marketing campaign to have several conversion types. I’ll use a simple illustration to show you what I mean.
Let’s assume you and I would like to track conversions for three different campaigns. The first is a paid advertising campaign. The goal of the ad is to get users to sign up for a free product trial. So, every time someone signs up for a free trial, we will count that as a conversion.
Next, we'll track website sales. That means a conversion occurs every time visitors buy a product through the company site.
Finally, we will track events for our social media awareness campaign. Every time someone clicks on the link that we have embedded in each social media post will be counted as a conversion.
Of these three conversion types I have just described, only one generates revenue. Yet, all three are designed to drive more sales.
Going further, micro conversions can be tracked within each marketing campaign. These are smaller conversion steps that contribute to the overall campaign goal. So, for example, the number of users who visit a website divided by the number of total impressions the site gets on search engines, is called click-through rate.
Click-through rate is a micro conversion metric that helps us measure the effectiveness of the website's search engine listing. Since we need unique visitors to come to our site, optimizing click-through rate is critical to the success of our campaign.
The definition of a conversion depends on several factors. But the first step is to define success for each campaign. This process will make it easier to establish accurate conversion goals for each tactic used within the strategy.
To summarize, conversions can be defined on many levels, such as:
Campaign level (i.e., keyword conversion rate for SEO and paid ads)
Channel or page level (i.e., website visitors converted, social media user engagement)
Overall conversion rate (i.e., total ad interactions)
Conversion Rate and ROI
Most businesses and marketing teams understand that conversion rate is a critical key performance indicator. But using conversion rate to optimize a marketing campaign is a bit tricky.
Brand audit clients come to us for many reasons, but increasing ROI (and therefore, profit) is among their primary goals. So, let's explore the impact of conversion rate on marketing ROI.
Most brand executives and business owners link a higher conversion rate to increased ROI, but this isn't always true.
Why not?
Because conversion rate alone is not the determining factor in the ROI equation.
As one example, marketing costs impact profit. So, even though investing more money in the marketing budget might drive conversion rates higher, doing so may actually lower profit.
Another point to consider is that trying to get more responses for one type of offer may have an adverse effect on another. For instance, if you want to get more conversions from your website, you may decide to invest more money in web traffic campaigns. But getting more traffic may decrease conversion rates for email subscribers and product purchases. This often happens when the additional traffic is not qualified for the offer.
So, before you make any changes in strategy, consider the impact each change will make on every conversion goal.
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What Is a Good Conversion Rate?
This is another popular question brand audit clients ask. And, as you might expect, they don’t always like our response: it depends.
A “good” conversion rate is determined by several factors.
Industry (business type) plays a significant role in conversion rate averages. Some industry sectors are more competitive than others. So, the more competitive the business category, the lower the industry-wide rate tends to be.
There is a direct correlation between conversion type and the prospect's risk. Low-risk offers (i.e., free offers or low-cost offers) typically convert at higher rates when compared to offers that require a significant investment. For example, signing up for a free trial is a low-risk offer. So, the conversion rate for free trial subscriptions will be much higher than product sales.
Of all the factors that affect conversion rates, the quality of the target audience is, by far, the most influential. Many times, brands can increase their conversion rates dramatically by retargeting an audience that is better suited for their offer.
Sometimes, brands lack enough data to establish a conversion rate baseline. As a result, they aren’t sure what their marketing conversion rate should be. This might be the case for companies launching new advertising or email campaigns. In these situations, it is best to test and optimize each campaign over a short period before setting a conversion rate baseline. This process is known as A/B testing.
Get in touch with us if you have questions about A/B testing.
For reference, here are the average conversion rates for the most common marketing channel types:
Organic = 16%
Paid ads = 2.5%
Social media = 0.71%
What Data Is Used to Calculate Conversion Rate?
There is so much data available at click of a mouse that we can get lost in it all. Data overload creates problems with conversion tracking. The amount of data is rarely the issue. Usually, it is more challenging to separate the data you need from the data you don’t.
It's important to stay focused on what matters. Often, brands and marketing teams track metrics that don’t add value to the bottom line.
Social media is a great example. Everyone loves to see lots of “likes” when they post something on social, but how do "likes" contribute to a higher conversion rate?
Many businesses interpret social media likes as a positive brand awareness metric. But in reality, they have little impact on long-term revenue growth. However, comments and shares have a positive impact on brand awareness. So, while likes can serve as an indicator, comments and shares have more meaning.
Conversion Tracking Data
The tracking data you need is based on conversion goal type. Here are some of the most common:
Google Ads
Businesses can use Google Ads traffic data to track website and mobile app conversions. The Google Ads platform also provides data for phone calls, which occur when a user clicks on the phone number listed on a page or ad.
Google Analytics
Google Analytics is a comprehensive resource of meaningful data for websites. When you connect your site to the Google Analytics platform, you gain access to website traffic sources, user behavior, page performance, and other vital information.
This platform also allows you to set up a conversion goals to monitor customer behavior and events such as:
- Ad clicks (used for individual ad conversion rate)
- Number of unique site visitors from each traffic source
- Call to action events
- Content engagement
- Website pages viewed (also used for lead generation landing pages)
- E-commerce transactions
Social Media Analytics
Each social channel provides its unique data management platform. For example, Facebook Business Manager supplies brands with in-depth analytics on Facebook ads traffic and content. Pinterest, Instagram, Twitter, and LinkedIn also have analytics dashboards that display user engagement and ad results.
Again, the type of data you need depends on the marketing channel conversion rate you want to track.
Other Problems with Calculating Conversion Rate
Sometimes, calculating conversion rate is not as simple as it appears. For example, how would you handle multiple conversions from marketing campaigns that come from one prospective customer?
Let’s look at how that might happen.
Jill visits your company’s social media page and sees a post that includes a link to your landing page. She clicks on the link, goes to the page, but does nothing. The next day, she visits your social media page again. This time, she clicks on the landing page link and signs up for your email list. So, in this instance, Jill converted three times—twice via social media, and once on the landing page.
The question is: should we count this as three conversions, or one?
To maintain accurate data, we don’t want to credit Jill with three conversions.
This scenario demonstrates how important it is to keep multiple marketing metrics. In this case, if we're tracking the number of social media conversions and website conversions, the overall conversion rate will be more accurate. In this case, click-through rate comes to the rescue. This metric tells us how many people click a link. A page-level conversion rate would then reveal how the event took place on the site page.
Conversion Rate Optimization (CRO)
CRO is the art and science of increasing conversion rate through a variety of strategies and tactics. Here are a few examples:
Perceived Value
The perceived value of an offer plays a significant role in conversion rate. The more valuable something is, the more likely someone will buy it. This concept translates to all offers, regardless of the associated investment or risk.
To improve perceived value, create a strong value proposition and benefit claims.
Availability and Delivery
People want products and services, and they want them as quickly as possible. Brands with offers that are readily available and obtained with little or no hassle will have more conversions.
Audience Quality
As I wrote in a section above, the quality of the target audience is one of the primary factors for increasing responses. So, re-evaluating audience for quality (or in-depth segmentation) is the first step you should take to optimize campaigns.
Other Conversion Rate Optimization Tactics
There are other technical steps you can take to optimize ads, such as:
- Test Google ads traffic types.
- Test keywords.
- Test landing pages for best results (i.e., change images, experiment with benefit claims).
- Review web analytics to observe user behavior. This data reveals which pages get more qualified traffic.
Want to increase pay-per-click conversions?
Find out what most companies overlook that impacts paid ad conversions.
Get a Brand Audit to Help You Increase Conversions
The Brand Auditors gives you access to cutting-edge tools and strategies to help you optimize your conversion rate and increase your ROI, from A/B testing to landing page optimization.
Our team of experts has a deep understanding of the latest trends and techniques in digital marketing. We stay up to date on the latest algorithms and best practices to make sure you get the best possible results.
When it comes to optimizing your marketing strategy, every detail counts. That's why we use a data-driven approach to identify the most effective tactics for your business. We'll help you track your metrics and make adjustments as needed to maximize your ROI.
Whether you're a small business looking to grow or a large corporation seeking to stay ahead of the competition, we're here to help.
Click on the button below and schedule a free consultation to find out how a brand audit can help you take your marketing to another level.
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- Increase ROI on lead generation and sales conversions.
- Reduce marketing expenses.
- Strengthen brand positioning to become more competitive.
We guarantee satisfaction or get your money back! Schedule a discovery call with a brand auditor to find out more.
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