Marketing Studies

In previous articles we covered the conversion benchmarking problems and misinterpreting conversion data without understanding the entire picture. But we never really got around to taking a look at what conversion actually is, what it tells us and why it's important for interactive marketers.

If you're thinking "Nah, I already know all of this", give me a few more minutes. The conversion isn't just about knowing what % of your traffic is turning into buyers or comparing test variables against each other. And, if interpreted incorrectly, it leads to many mistakes that make a dent in the bottom line.

But first let's define the conversion rate ...

What is Conversion Rate?

Wikipedia defines the conversion rate as ...

"... the percentage of unique visitors who take a desired action upon visiting the website. The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a whitepaper, or some other measurable action."

While this definition is a good start, a broader definition is needed:

The conversion rate is a % of unique actions that result from unique exposures.

The keywords here are:

• Actions - a clearly defined measurable activity performed by the unique subjects exposed to our call-to-action [CTA]
• Exposures - a clearly defined measurable CTA, presented to a number of unique subjects
• Subjects - the number of individuals exposed to the CTA
• Unique - all single and clearly identified actions and exposures are only counted once for each individual subject
• Call-to-Action - an expressed request for the subject to take the required action after viewing our creative

How is this different from the Wikipedia definition (which comes closest to how marketers view conversion)?

• The conversion does not necessarily need to be linked to a website or even happen on a website.
  For example, in my e-commerce work I measure the conversion for multiple interactive elements, such as conversion per e-mail open-rate, conversion per ad impression or even conversion from e-mail sent to telephone contact.
  By applying a broader meaning to the term conversion rate you are able to apply the conversion rate methodology to a larger number of key interactive elements you wish to measure and improve.
  Hence, in the definition, we need to get rid of "upon visiting the website" but rather use the term "exposure".
  
  
• Unique visitors really cannot be measured accurately online, due to several technical issues.
  You can never be certain that two people you are counting as two unique users are really two different people. They might be just one person, accessing your website from two different computers.
  And the same goes for an e-mail address; you might have multiple e-mail addresses in your database, belonging to just one real person.
  Or even better yet, the visitor might not even be a person, but a computer script.
  Consequently, the term unique visitor is really a bad choice of word that might lead to misinterpretation.

The Conversion Rate Formula

The conversion rate formula is simple:

Conversion Rate = Unique Actions / Unique Exposures

Two quick examples to make this easier to understand:

• Overall Website Sales Conversion Rate = Unique Sales / Unique Visitors
  [if your Overall Website Sales Conversion Rate is 5%, it means that 5% of the people that visited your website purchased something]
  
  
• Overall E-mail Sales Conversion Rate = Unique Sales / Unique E-mail Addresses
  [if your Overall E-mail Sales Conversion Rate is 2%, it means that 2% of the people that your e-mail was sent to purchased something]

This is of course a very simplistic conversion rate formula. In most cases you would need to go into much more detail to get any usable numbers.

What You Are Actually Measuring With the Conversion Rate?

• The conversion rate is a measure of your efficiency. It tells you approximately with what efficiency you are getting the people that are exposed to your CTA to take the action you want them to take. There are several different types of conversion.
  
  
• The conversion rate does not tell you the whole story about your efficiency --> it depends on the sources of traffic you are utilizing, the audience you are reaching, your brand, all of the elements of your CTA and so on. Consequently, the conversion rate is an indication of your overall internet marketing efficiency, not just your website efficiency.
  
  
• The conversion rate is not a measure of your success. It only tells you part of the story. And in some cases, as we already discussed, a lower conversion rate might actually be generating better financial success than a higher conversion rate.
  

How Precise is the Conversion Rate?

Due to multiple internet technology issues, the conversion rate is not a precise measure. It should not be viewed as an absolute metric, but rather used as a trend indicator.

The more focused your conversion rate measurements, the more precise trends you will get.

• For example, measuring the overall sales conversion of an entire website with all of its traffic sources gives you a completely useless number.
  
  
• Measuring the overall sales conversion for a single type of traffic source, such as Google, gives you a number you can start working with.
  
  
• Measuring the overall sales conversion for a single Google campaign gives you really the first usable piece of information.
  
  
• Measuring the conversion rate of various sales process elements for a single Google campaign gives you a strong piece of information that you can use to improve your marketing.

How You Can Use the Conversion Rate?

• Improve the performance of your campaigns without increasing your ad spend.
• Improve the overall performance of your website or other CTAs.
• Forecast the sales results of your online advertising campaigns.
• Compare different interactive test elements.
• And much much more ...

OK, enough for the start. If this article seems a little technical in nature, don't run away. I promise the next one will be more practical, as we start looking at the various types of conversion rate you can measure.