Internet Entrepreneurship: Conversion Rates
Transactions taking place on the internet typically have a conversion rate that can be calculated in the following ways:
1. The number of transactions divided by the total number of visitors.
2. The amount of money spent times the total number of transactions.
3. The amount of traffic times the conversion rate for an average transaction value (The higher this value is, more conversions will be realized).
4. The number of visits divided by the average transaction value.
5. The total number of transactions divided by the amount of money spent.
6. The total number of visits divided by the average transaction value.
7. The conversion rate per visit (The higher this is, the better).
8. Conversion rate per visitor (The higher this is, the better).
9: Conversion Rate per transaction (The higher this is, the better).
10: Conversion Rate per visitor (The higher this is, the better).
11: Conversion Rate per visit (The higher this is, the better).
These is a common misconception that the conversion rate must be calculated and reported separately for each landing page, or that it can only be done when calculating a CPA.
What many don't understand is that the conversion rate is dependent on the type of transaction. For example, you can't calculate the conversion rate for a lead form (like an optin form) or subscription signup because it's not really something that has a monetary value, so it's not something that you can divide by in order to get some kind of meaningful number.
The Conversion Rate: What it is and why you need it
For this reason, what we're dealing with here are different types of conversions. You see, the conversion rate is a cumulative value that must be calculated in this way:
The number of conversions divided by the total number of visitors. (Even if it's not an actual monetary transaction).
This is something that separates marketers from programmers. Programmers are too focused on believing a lot of things without thinking them through, while failing to understand how their work affects people's lives. Marketers aren't like this at all because they know that their work has a real impact on the comfort and financial security of many families out there. The conversion rate is just one example. It might seem simple, but it's actually very complex because it's not just about numbers; it deals with human reactions, emotions, and psychology . That's why it's so important for marketers to understand these things.
The Conversion Rate in Action
Here's a classic example of an internet marketing campaign built around creating a conversion rate.
Because I've seen it so many times, I've come up with a name for this type of strategy: "Me-too". This is the kind of thing that people do when they have no idea what they're doing. In this case, my goal is to calculate the number of visits converted into purchases divided by the average transaction value, and then multiply it by the conversion rate (which is a percentage).
This is what I mean:
Let's say that a company has 100 visitors per day, and they're divided into 5 different landing pages (in other words, 5 different offers that you tested with your traffic and found to be performing best), which means that on average there are 20 visits for each of these pages.
The total amount of money spent is $100.00 USD because those 100 visitors resulted in 20 people who purchased something from the site. The average transaction value is $50.00 USD because each person purchased two products, which means that each person spent $50.00 USD. Now let's say that conversion rate was 10%.
This means that $5.00 USD was spent for each of the 20 visitors who purchased something.
If we divide the amount spent by the average number of visits, we get 0.6% (10 divided by 20).
We multiply this number with the conversion rate, which is 10% (10 divided by 20).
This means that each visitor divided into $5.00 USD spent (20 divided by 10).
We divide this value by 100 visitors, which gives us a conversion rate per visit of 0.06 (20 divided into 5 times 0.06). Then take that figure and multiply it times 100 visitors to give you a conversion rate per visit of 6%. Now that we have all of this information, we divide the amount spent by the average number of visits to determine how much each visitor spent.
This means that on average, each visitor spent $5.00 USD (20 divided into 5 times 0.06). Take this figure and multiply it times 100 visitors, to get a conversion rate per visitor of 6%. Finally, take these two numbers and add them together to give you a conversion rate per visit of 6%.
As you can see, the more landing pages you have in your campaign and the more times they're visited, the higher the conversion rate will be (you'll find out why in a while). This is why some people call it a "me-too" campaign, because it's imitative of the kind of things that other people do in order to gain traffic, rather than relying on something that they genuinely understand by themselves.
I've included this example to show you what I mean when I say that this kind of thing can go wrong. In fact, the conversion rate is one of the most important metrics you should be measuring to clearly and unambiguously see how well your site is doing in terms of user experience.
Conclusion
Understanding the conversion rate is crucial for any marketer. It's very easy to forget about this metric and make a lot of mistakes when you're juggling a ton of work and too many things going on at the same time.
The conversion rate is probably one of the most important metrics you should be measuring .
I hope that this article has made it clear what it is, why it's so important, and how to calculate it. If you have any questions, or if I've left anything out, please leave them in the comments below.