There might not be a term thrown around more often by marketers than conversion rate. And it’s for good reason – conversion rate is everything for a business that operates online.
If you know you know how to calculate conversion rate and monitor it closely, you can:
- Predictably scale advertising spend
- Hire sales teams
- Determine your profitability
- Allocate resources more efficiently
- And so much more!
But not knowing how to calculate conversion rate can sink your ship.
You can end up overpaying for your leads and sales — often to the point of marketing yourself out of business. When it comes to conversion rates, ignorance isn’t bliss – it’s going broke.
In short, knowing how to calculate conversion rate and improve it is essential skill for marketers. And don’t just take my word on it. Here’s how Johnny Cheng, a Platform Product Marketing Manager at Marketo, describes it:
“Conversion rate is one of the most important marketing metrics. It’s a metric that lead generation marketers—from practitioners all the way up to CMOs—are measured on.”
And here’s what ConversionXL says:
“Increasing your conversion rates is absolutely crucial. Having a good conversion rate is the foundation of high sales volume.”
At Proof, I receive reports (on a daily basis) from Amplitude, Google Analytics, and our other software tools about our conversion rate. And while these reports are helpful, if I don’t stop every once and a while and think about what the numbers truly mean, the reports are just data points.
Like most people, I’m often guilty of ignoring the math that’s happening in the background and I’m prone to simply tracking adjustments to conversion over time.
And that’s a mistake.
As a marketer, you should have full knowledge of the logic behind the numbers you’re tracking. Slowing down and thinking about what’s actually happening can give you more insight into process improvements, conversion optimization techniques, and opportunities that you may have initially missed!
Whether you’re new to marketing or if you’re a full-fledged digital expert, this guide will provide everything you need to know in order to calculate conversion rate for your website. I hope it’ll provide a framework on how to calculate conversion rate and how to use it grow your business.
Defining Conversion Rate
In its most simple form, a conversion rate is the percentage of visitors to a site or page that complete a certain goal.
So, what can the goal be?
Some common conversion goals include:
- Making a purchase
- Submitting information (a lead)
- Calling a business
- Signing up for a newsletter
- Creating an account
- Downloading an asset (an eBook, a guide, or some other form of content)
- Engaging with your site (ex: time on site, visits to certain pages, page count)
Choosing a specific conversion goal will depend on the specific nature of your business. While a purchase goal will be ideal for an e-commerce brand like Casper or Quip, a content site like Nerdwallet or Mindbodygreen will prefer a goal such as signing up for a newsletter.
Moz treats conversions in an especially thoughtful way — they explicitly differentiate between macro and micro conversions.
- A macro conversion is a primary goal (such as selling a product or getting a quote)
- A micro conversion is a goal that helps facilitate the path to a primary goal (adding a product to cart or signing up for a mailing list)
Pretty simple so far, eh? Let’s keep going ⬇️⬇️⬇️
How to Calculate Conversion Rate
Now that we’ve got a basic grasp on the topic of conversion rate and have defined some common goals, let’s approach calculating the magic number.
So, how exactly do you calculate conversion rate?
Here are 3 conversion rate formulas to use:
- Conversion Rate = Total number of conversions / Total number of sessions * 100
- Conversion Rate = Total number of conversions / Total number of unique visitors * 100
- Conversion Rate = Total number of conversions / Total number of leads * 100
Note: All 3 of these formulas are valid. The best way to calculate conversion rate depends on what exactly you’re defining as your conversion event and how you plan on measuring traffic. The numerator will measure your conversions (as defined by your conversion rate goal) and the denominator will be what you define as your total pool of traffic (generally session count, unique visitors, or leads).
An Example for Calculating Conversion Rate
Let’s use an example to better explain this process! In our example, you run an e-commerce website that sells Game of Thrones t-shirts: Targaryen’s Tees.
The conversion goal here is having a visitor go through your funnel and purchase a shirt.
The site gets 100,000 unique visitors in the month of February. You are able to sell t-shirts (your conversion event) to 2000 people.
So, what’s the conversion rate?
If you said 2%, you’re correct! Here’s how we got there:
|Conversion Rate Formula = Visitors / Conversions * 100||100,000 / 2000 * 100 = 2%|
Looking for a quick way to calculate conversion rate? Here’s a great website conversion rate calculator.
Conversion Rate & Profitability
So a basic conversion rate formula calculation is easy, but let’s dig a little deeper to see how conversion rate affects your bottom line!
Building a lasting, profitable business is a goal for most entrepreneurs. And what’s a sure-fire way to create profitability?
Increasing conversion rate.
Let’s talk through what I mean by that. Imagine our same business from above: Targaryen’s Tees.
In our scenario, the business gets its funnel of traffic from a pay per click (PPC) campaign. If the average CPC is $0.50 and the business spends $50,000 to generate its 100,000 visits, how can you tell the profitability?
Well, it all depends on the conversion rate!
At a 2% conversion rate, the business is able to profit $50,000 — and if they are able to increase that rate to 10% — look at how much of a difference it makes in the bottom line:
|1% Conversion Rate||2% Conversion Rate||10% Conversion Rate|
|Profit per Order||$50||$50||$50|
|Total Profit from Orders||$50,000||$100,000||$500,000|
|Total Ad Cost||$50,000||$50,000||$50,000|
Holding all else equal besides the conversion rate — and the business can generate $50,000 more in profit with each 1% increase in conversion rate.
Valuing a Click
Another thing to consider when thinking about calculating conversion rate is the value of a lead or the value of a click.
Your current conversion rate determines how much you are able to spend on a lead or a click. If you improve your conversion rate, you can start spending more money on your paid ad campaigns.
Let’s look at how ROI changes as you increase your CPC bid at a steady 2% conversion rate. The only leading variable that’s changing here is average CPC.
Ad Cost, Profit, and ROI are all lagging variables in this example.
At a $0.25 CPC, the campaign is profitable (and quite profitable with a 300% ROI). But at a $1 CPC, the campaign is break-even at this conversion rate.
The only way to make the campaign profitable is to increase the profit per order, decrease the CPC, or increase conversion rate. Pay close attention to the bolded rows in the example below:
|2% Conversion Rate||2% Conversion Rate||2% Conversion Rate|
|Profit per Order||$50||$50||$50|
|Total Profit from Orders||$100,000||$100,000||$100,000|
|Total Ad Cost||$25,000||$50,000||$100,000|
Notice how that as we increase our CPC, we end up paying more for ads. That makes the campaign unprofitable at a 2% conversion and a $1 CPC.
But what would happen if the conversion rate increased to 10%? Again, pay attention to the bolded rows:
|10% Conversion Rate||10% Conversion Rate||10% Conversion Rate|
|Profit per Order||$50||$50||$50|
|Total Profit from Orders||$500,000||$500,000||$500,000|
|Total Ad Cost||$25,000||$50,000||$100,000|
Here, we can pay even more and still have ROI positive campaigns. In fact, you could spend up to $500,000 (or $5 CPC) before being in the red!
Time Period & Calculating Conversion Rate
For most companies and situations, you’ll want to measure conversion rate over a consistent time horizon so you can measure the changes to your conversion rate over time.
The overwhelming industry standard is to measure conversion rate on a weekly or monthly basis. At Proof, we track it on a trailing weekly basis — and that’s the right decision for our stage of business.
As your traffic increases or your business changes, this might be a variable that you consider adjusting to a more frequent schedule.
So, What’s a Good Conversion Rate?
This is a question we receive fairly frequently — and the true answer is that it depends on your industry, how you’re defining conversion rate, and the nature of your business.
Here’s what Unbounce’s report on 64,000 landing pages claims:
“Generally, a 12% conversion rate is pretty good for lead generation landing pages. And by ‘pretty good,’ we mean you’ll be better than about 90% of your competitors.”
Or if we look at Wordstream’s suggestions from Google Adwords, they cite the industry-wide rate to be 3.75%.
Or, let’s look at some of Proof’s customers. By installing Proof on their site and targeting their ad campaigns, we’ve seen customers boost their conversion rates to upwards of 80%.
More Specific Conversion Rates
So far, we’ve addressed calculating conversion rate in its most simple form. Our definition for conversion rate has been a measurement to tell you how well you’re converting traffic sitewide.
But there are several types of more specific rates you need to know about:
Overall Conversion Rate
This conversion rate looks at all of your site traffic and provides a measurement of your success towards one conversion goal. In the case of Proof, our site conversion rate looks at what percentage of website visitors sign up for a paid account.
Channel Conversion Rate
Does your business rely on multiple channels for traffic? I hope so! The channel conversion rate provides a channel-by-channel breakdown of your conversion. It will help you identify differences in performance depending on the Traffic Source — for instance, whether you’re seeing more conversions from Google SEM or Facebook Ads.
Page Conversion Rate
Identify your top converting landing page, and use the data to reallocate traffic to your highest converting pages.
Ad or Campaign Conversion Rate
When running digital ads, you’ll follow a different protocol depending on whether your prospects are in consideration, awareness, or conversion. If one ad or campaign sees a significantly higher conversion rate, you might want to consider pushing more traffic to it.
Keyword Conversion Rate
Some keywords perform better than others — it’s a simple fact. Looking at keyword conversion rates comparatively can help you identify keywords that have less volume but a higher conversion rate. In that case, it may be worth reallocating your budget to those traffic sources.
How to Measure and Calculate Conversion Rate on Your Site
Now that we’ve reviewed the formulas behind our basic math — it’s time to take this knowledge and use it to implement conversion rate tracking on your site (if you’re not already).
So what do you do?
- Set up conversion tracking on your Website. Google Analytics is one of the most powerful options. Depending on the size and scale of your business, you might also want to consider KISSMetrics or Mixpanel as well.
- Drop conversion tracking events at various points in your funnel. You’ll install a pixel or identify a tracking page when getting started with most software tools. Each software provider will give you explicit instructions on how to do this.
- Get tracking. Once the data starts flowing, it’s time to start using it to have actionable consequences for your business. Review data on a frequent basis to start tracking and improving your conversion rate.
Did you enjoy this article? Want us to write more blog posts like this one on conversion rate formulas?
Leave us a comment below!