Guide On How To Calculate Conversion Rate (With An Example)

Updated 11 October 2022

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Companies consider several factors when measuring the success of its online business and conversion rate is one such critical factor. A high rate of conversion empowers a company to assess the success of its campaign and contributes to a thriving business. Understanding everything about the rate of conversion might help improve your marketing strategies. In this article, we define the rate of conversion, highlight its types, list its importance, explain the steps to calculate it and review tips for optimising it, along with a sample calculation.

What Is A Conversion Rate?

Conversion rate calculates the percentage of visitors to a website or landing page that takes the desired action, such as making a purchase, submitting a form, signing up for a subscription, registering on the website or downloading something. This is an essential marketing metric because it gives marketers insights into the frequency of visitors and other actions they take. As these conversions translate into sales, revenue and profit for the company, it is essential for a marketing professional to track and measure them.

The calculation helps determine the market demand for the product, understand the advertising strategies and select marketing channels. It is key to understanding what is working for the business and what is not working.

Importance Of Calculating The Rate Of Conversion

Here are some benefits of calculating the rate of conversion:

Improves the marketing budget

A company might spend money on their marketing budget to reach potential customers. The rate of conversion of a particular industry or company informs the marketing team about tactics and advertising campaigns that deliver the desired results. After understanding why customers respond to a particular campaign, it becomes easy to know what strategies are working. Deciding based on the rate of conversion empowers a company to change its marketing strategies to ensure a high probability of success.

Helps understand the target market

The calculation of the rate of conversion informs companies about the services, offers and ads that attract potential customers. This rate makes it easier for companies to identify areas that gained the highest conversions. It helps marketers understand the customer and their needs and preferences. The marketing team can alter its marketing and advertising strategies based on these needs.

Reduces customer acquisition cost

To improve revenue and increase profits, a company focus on reducing the customer acquisition cost (CAC), which is the cost a company spends on acquiring a new customer. To attract a customer, a company spends money on paid advertisements to market its products. Spending money on advertising and marketing without customers responding increases the CAC. After calculating the CAC, companies can spend on advertisement and marketing material that resonates with their potential customers. This might lower the CAC and enhance the company's profit.

Increases return on investment

A good rate of conversion means a stronger return on investment (ROI). This is because a company spends less money on acquiring customers. Typically, an increase in the rate of conversion can significantly increase the ROI of a marketing campaign. A poor-performing marketing campaign makes promises and does not fulfil the customer's expectations, resulting in a high bounce rate. The bounce rate reduces the rate of conversion, lowering the ROI.

How To Calculate Conversion Rate?

Here are the steps to calculate this conversion metric:

1. Collect the required data

Before calculating the rate of conversion, it is essential to collect data that gives information about the traffic on the company's website. Track and calculate the number of visitors visiting a website or landing page during a specific period. When the marketer knows the number of visitors reaching a website or landing page, it becomes easier to understand the number of visitors who performed a desired action.

2. Use the rate of conversion formula

The formula for calculating the rate of conversion is:

Rate of conversion = (Conversion / Total visitors) x 100

For instance, if 30,000 visitors visited a landing page in six months and the total number of visitors who performed the desired action was 6,000, the rate of conversion is:

Rate of conversion = (6000/30000) x 100
Rate of conversion = (0.20) x 100 = 20%

Companies typically represent the rate of conversion in percentage.

3. Analyse the value

After calculating the rate of conversion, marketers can analyse and review its implications. After knowing the company's rate of conversion, marketers compare it with industry standards, company goals and product expectations. When a company experiences a higher rate for three to four months, it shows that the company experiences steady growth.

Other Formulas For Calculating The Rate Of Conversion

Depending on how a business measures success and the company's end goal, the formula for calculating the rate of conversion might be different. Here are three formulas you can use to calculate this rate:

Rate of conversion = (Total number of conversions / Total number of sessions) x 100

Rate of conversion = (Total number of conversions / Total number of return visitors) x 100

Rate of conversion = (Total number of conversions / Total number of leads) x 100

When a business owns an online website that sells deodorants, the primary goal of the company might ensure customers find the website and purchase from the company. The company creates a sales funnel that leads them to the virtual shopping cart for a customer to make the final purchase.

Types Of The Rate Of Conversion

After receiving sufficient website traffic, a marketer separates metrics based on the type of rate of conversion. Here are two types of rates of conversion:

New visitor rate of conversion: The rate primarily considers the new customers or visitors who visit the website for the first time. Content clarity, ease of navigation and overall website experience influence this rate of conversion.
Return visitor rate of conversion: When a customer returns, they might return to complete a job or learn more about the company. These visitors are ready to convert because they found the website more than once.

Ways To Optimise The Rate Of Conversion

Here are some tips that marketers can use to optimise the rate of conversion:

Test the landing page or website

A landing page or website encourages potential customers to make a purchase. With A/B testing, a marketer compares two versions of a particular web or landing page and determines the page that delivers a higher rate of conversion. This empowers a team to modify content and design landing pages depending on the results obtained. Implementing these changes can ensure that the landing pages are more accurate and serve the desired purpose.

Include compelling headlines

Creating compelling headlines is a great way to attract potential customers to the website. It helps in summarising the importance of a company's product because it is the first thing a customer sees after visiting the website or landing page. When the marketing team focuses on creating compelling and eye-catching headlines, it encourages a customer to make a purchase. Focus on using easy-to-read fonts and colours that attract the attention of potential customers. When the headline of a website is compelling, it is likely to optimise and increase the rate of conversion.

Remove distractions

When a customer visits a website that pulls them in many directions, it can distract potential customers. To ensure a higher rate of conversion, having a clear, easy-to-navigate and concise landing page is essential. When creating a website or landing page, remove any distractions from it and stick to what the potential customers require.

The landing page or website includes a compelling heading and sub-heading, testimonials or reviews, benefits and features and visual content showing the company's offerings. Try eliminating interactions such as live chat box, video and social proof. This helps the visitor focus on the benefits and features offered by the company.

Sample Calculation For The Rate Of Conversion

Here is a sample to calculate the rate of conversion:

The Superstar company sells perfumes. The company wants to improve its marketing strategies and increase its customer base on social media channels. To understand where the company can improve, the marketer calculates the overall rate of conversion for its website. The desired goal of the website is to ensure that a customer purchases at least one perfume after visiting the website. The marketer uses an online analytical tool to identify the total number of visitors and conversion.

Last quarter, the website had 40,000 visitors and 3,200 people purchased the perfume. This implies that the company has 3,200 conversions. The rate of conversion of the Superstar company is:

Rate of conversion = (Total number of conversions / Total number of visitors) x 100

= (3,200/40,000) x 100 = 8%

Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed.