Acquiring new customers through marketing and advertising is one of the four key drivers of business success. An extension of that is the rate by which a business converts the customers it attracts through those campaigns.
Many businesses feel that conversion rate is one of the most important metrics because they believe it differentiates between business success and failure. It measures the number of visitors to a particular store, website, or sales call center within a specific period, divided into the number of people who take the desired action (make a purchase, register for a free trial, or any other intended actions).
Truth be told, conversion rate is one of the most commonly misused behavioral metrics.
What constitutes a good conversion rate depends on the industry and the nature of the action desired. According to Forrester Research, the average conversion rate for a typical e-commerce site is approximately 3.5 percent, which in and of itself is a misleading benchmark to apply. For example, if your industry conversion rates typically fall between 3% and 5%, a 2% conversion rate is poor, and a 10% conversion rate is outstanding. The chart below illustrates the relationship between different conversion rates and the revenue they generate:
As conversion rates go up, revenues rise while marketing costs (as a percentage of total sales) fall. That is why these rates matter so much and why they are a basic web key performance indicator (KPI): they directly impact revenue and the cost of customer acquisition.
At the same time, focusing solely on an aggregate conversion rate can be misleading.
Why people visited a store or website—their intent – is a critical piece of information often missing when company leaders look at conversion rate.
Take for example a company adding comprehensive service and repair information to its website so visitors could quickly find information to make basic home repairs to its products.
Although the amount of people coming to the site increased, the conversion rate of total site visitors declined. The decline was the result of the additional visitors who came for information. While some executive might assume the changes to the website were a mistake, they couldn’t be further from the truth. The company actually was providing a better experience for those customers seeking support, thus increasing their customer satisfaction and their likelihood to buy more in the future and recommend the company to others. Additionally, their positive experience lowered support costs elsewhere (fewer request in the company’s call centers, for example).
Success comes down to being able to measure the customer experience the right way with the right metrics so you can manage company initiatives and customer expectations so you can make a difference in the company’s bottom line. So it’s pretty straight forward: measure right, manage forward, make a difference.Categories: Uncategorized