Conversion Rate

What is the conversion rate?

Conversion rate is a business metric that represents the percentage of users who take the desired action such as making a purchase from your site or signing up for your newsletter. The formula to calculate the conversion rate is the number of conversions divided by the number of visitors. 

Conversion Rate Formula = (Number of Conversions / Total Number of Visitors) x 100%

Suppose a marketer launched an ad campaign on a channel that is viewed by 10000 visitors of which 400 visitors clicked on the ad. Then the conversion rate of the campaign would be 0.4%.  It is computed as:

• The number of users who clicked on a campaign/The number of visitors that saw the campaign

After obtaining the conversion rate of 0.4% from the campaign the marketer can use this as a baseline and can build campaigns in the future that can result in a conversion rate higher than the baseline.

Why is conversion rate important?

Conversion rates have been a reliable indicator for marketers to measure how well they are engaging consumers through their campaigns. By measuring performance in terms of conversion rate they can effectively compare which campaign is performing superior over the other.  

When used correctly, conversion rate analysis can reveal some great insights in various scenarios-

• Spotting effective channels for campaigns – Helping an advertiser determine the effectiveness of their copy and use it to guide strategic decisions. 
• Spotting bugs – If your data shows that the conversion rate is lower than expected, then there could be an issue in the app which is leading to low signups. 
• Spotting high-potential segments – Are a certain set of users showing a strong interest in the campaign as compared to the rest? ​​An increased conversion rate in a certain segment is a strong testament to a better engagement. 

An improved conversion rate can lead to higher revenue at the same operational cost leading to higher profits.   

What is a good conversion rate?

What’s considered a good conversion rate can vary by industry,  and depend on product type, average order value, and where your website visitors come from. For example, an online store selling high-priced products will have a lower conversion rate than one selling inexpensive products. 

You can improve your conversion rate through effective use of landing pages and better targeting in your advertising. Through A/B testing you can determine what strategy/variant works well for your target audience.  This approach will ensure that you are – 

• reaching the right customers, 
• showing content that resonates well so they convert (whether you want them to buy, sign up for a newsletter, or take another specific action).

You can refer to our in-depth guide on conversion rate optimization where we have covered several strategies that marketers can use in their respective industries to increase conversion rate and improve their business growth further. You can also start a 30 day free trial with VWO to A/B test your way to better conversion rates. 

What if the conversions are delayed?

Although the computation of conversion rate is mathematically trivial, it can be challenging to get a correct sense of conversion rate when conversions take place after a delay of several weeks/months. These delays are common in the purchase event of expensive products. When the conversion is delayed, visits are labelled as non-conversions early on as sufficient observation isn’t allocated to them. You can refer to our blog post where we have explained how you can compute conversion rate in delayed conversion scenarios.

Different types of conversion rates

Understanding different types of conversion rates across industries can aid businesses in recognizing opportunities for enhancement and refining their marketing efforts to increase their overall conversion rate. In this section, we will delve into the various types of conversion rates that are prevalent in different industries.

eCommerce conversion rates

a. Product conversion rate: It’s a metric to measure the percentage of visitors who purchased a product from the total number of visitors who viewed the product.

b. Cart completion rate: It measures the percentage of visitors who make purchases compared to those who add the product to the cart.

c. Checkout completion rate: It measures the percentage of visitors who complete the checkout process compared to those who start it.

d. Return customer rate: It is the number of customers who return to make another purchase from the eCommerce store compared to those who make the first purchase.

e. New customer acquisition rate: The percentage of first-time customers who make a purchase from the total number of visitors to the e-store.

f. Upsell conversion rate: The number of customers who make an additional purchase of a higher-priced item at checkout along with the intended purchase.

g. Cross-sell conversion rate: It is the percentage of customers who purchase additional items related to the products in their shopping cart along with the intended purchase.

SaaS conversion rates

a. Free trial conversion rate: It tells you about the users who have converted to paying customers from the total number of users on a free trial. 

b. Activation rate: It’s the percentage of users who have completed the necessary steps to start using the product from the number of users who have signed up for it. 

c. Retention rate: The percentage of users who continue to use the SaaS product or service after a certain period of time, such as a month or a year, from the number of users who started using the product. 

d. Expansion rate: It’s the percentage of existing customers who upgrade to a higher-tiered subscription or purchase additional products or services from the total number of paying customers.

e. Churn rate: The percentage of customers who cancel their subscription or stop using the SaaS product or service from the total number of active customers. 

f. Support conversion rate: The percentage of support interactions that result in increased customer satisfaction or retention or upsell opportunities from the total number of handled tickets.

eLearning conversion rates

a. Free trial conversion rate: It’s the percentage of users who convert to paid subscribers from the total number of free trial users.

b. Course enrollment conversion rate: The percentage of visitors who enroll in a specific course or program from the total number of visitors who viewed the course. 

c. Course completion rate: It is the number of users who complete a course or program from those who enroll. 

d. Retention rate: It’s the percentage of users who continue to use the eLearning platform after a certain period of time, such as a semester or a year.

e. Certification conversion rate: The percentage of users who complete a course and receive a certification from the total number of enrolled users.

f. Upsell conversion rate: The users who purchase additional products or services from the total number of users who have purchased a course. 

g. Engagement rate: The percentage of users from the total number of users who actively engage with the tech platform, such as logging in regularly or completing assignments.

Conversion rates that are common to all industries

a. Abandoned browse recovery rate: The percentage of visitors who viewed a product or category page but did not add anything to their cart and successfully converted after retargeting with personalized recommendations or offers.

b. Referral conversion rate: The percentage of users who refer new customers to the product or service, resulting in new customer acquisitions.

c. Website conversion rate: It is to measure the percentage of website visitors who complete a specific action about the total number of visitors. It’s also called visitor-to-lead conversion rate.

d. Ads conversion rate: It refers to the percentage of ad viewers who click on the ad and then take a desired action compared to those who viewed the ads. 

e. Social media conversion rate: The number of users who engage with social copy and take the desired action in relation to the total number of impressions.

f. Email conversion rate: It refers to the percentage of email recipients who click on a link within an email and then take a desired action from the total number of recipients.

g. Sales conversion rate: It is the proportion of qualified leads that become clients after engaging with a sales representative.

How does VWO compute conversion rate?

At VWO, we use a Bayesian methodology to compute the conversion rate. The conversion rate is modeled using a beta distribution. Suppose after running for a while a campaign obtains 10 hits and 7 conversions. By using a Bayesian update rule we obtain the posterior as Beta(1+ Conversions, 1 + Non-conversions) therefore we get Beta(8, 3).

We use the median of the obtained beta distribution to compute the expected conversion rate. o understand the rationale for using this approach to model conversion rate, please refer to the VWO Whitepaper.  

Frequently asked questions on conversion rate