What is Conversion Rate?
Conversion Rate is the percentage of conversions done for the total number of clicks obtained.
For instance, an eCommerce website obtained a total number of 1,000,000 (one million) clicks using AdWords which lead to 20000 (twenty thousand) sales (conversions) in the month of February. Its rate of conversions is (20000/1000000)*100 = 2% (two percent).
When single click results in multiple conversions, the multiple conversions aren’t added into a single conversion. Each conversion is counted individually. Based on this rationale, instances where conversion rate higher than 100% can be conceived too.
For instance, an eCommerce company sets adding to cart, filling up delivery address and payment as different conversions. When a buyer fulfills all the three goals, it is counted as three individual conversions, whereas the click that leads the buyer to the product page is just one.
Such situations lead to higher conversion rate than 100%. But this is very unlikely because usually conversions like this are set to track the buyer movement, these are micro-conversions. The only conversion here that actually is counted a conversion is when the buyer made the purchase. We suggest advertisers stick to tracking the last conversion instead of tracking micro-conversions.
Up until now, Google provided another click metric called Converted Clicks which counts the number of unique clicks that lead to a single or multiple conversions. The official last day of converted clicks metric in Google AdWords is 15th March 2017.
For instance, a Saas company using AdWords sets two different goals as conversions, one being signing up for their newsletter and the second was registering for their product demo. This action is counted as one converted click and two conversions when a user completes both the goals through a single click.
Converted Clicks can’t track multiple conversions. Converted clicks measure those conversions happened on the same device as the click was on. Measuring cross-device conversions wasn’t possible.
What is a good Conversion Rate?
A conversion is distinct to different business models, similarly, a good Conversion Rate also varies across different industries.
For an eCommerce website, a good conversion rate is around 2%. But even in the eCommerce industry itself, a product with a lower price tag like a pack of scented candles for $3 can draw a higher conversion rate than a pair of shoes priced at $300.
Whereas for a lead generation website whose primary conversion is a user filling their contact form, a 10% conversion rate could be good. But again, a landing page with a contact form asking for email and phone number can easily be sold rather than a landing page with a detailed questionnaire or additional fields.
The conversion rate is also highly advertiser specific. It is up to an advertiser to decide where to measure conversion. It could at the beginning of the sales funnel where a customer makes no monetary connections. Or midway with customer commitments or at the end of sales funnel when a customer actually is about to make a purchase or take a worthy action.
For instance, an eCommerce marketer sets up signing up (beginning of the funnel), exploring more 3 different product pages (midway) and purchase (end of the sales funnel) as conversions. If you are a buyer, you would sign up without much difficulty, even explore different product pages if you find relevant products. But making a purchase, you aren’t sure about it, right? Similarly many would sign up, hence this conversion might be very high. Exploring 3 different pages might see a slightly less conversion. But the purchase would obviously see the least conversion of all.
Conversion rate might actually drop down while we progress down the sales funnel. This doesn’t necessarily mean that the ROI is low, or the business is falling apart. Conversion type should be the basis to interpret conversion rate.
Instead of relying heavily on industry benchmarks, use the metric cost per lead to interpreting your Conversion Rate better.
Cost per lead = Avg CPC/ Conversion Rate
If the cost per lead is higher than the profit you are making from one customer, your conversion rate needs improvement. In other words, if your conversion rate is higher, your CPL comes down.