Conversion Rates are a thing of beauty. They’re the magic number that tells you how well a marketing effort is working. The higher the conversion rate, the better people are responding to your call-to-action and completing the step you’re asking them to take. While the conversion rate formula may be simple, there’s a bit more to it than meets the eye.
Before we discuss how to calculate conversion rate, let’s first get a quick understanding of what a conversion is, and what a conversion rate is.
What is a Conversion?
A conversion is whatever you want it to be. Any action that you want a person to take can be counted as a conversion, so long as it’s trackable.
For instance, if you want someone to give you their name & email address (phone number, mailing address, etc.) in exchange for a free report, every time a visitor takes you up on that offer, you have a conversion. If you want someone to call a phone number, as soon as they dial the number and are connected, you’ve gotten a conversion.
If you want someone to purchase a product, as soon as they’ve completed the transaction, they’ve converted.
However, conversion rates are useless if they aren’t properly being tracked. Many businesses make the mistake of not closely tracking what actions & offers are converting, which causes a number of issues. The primary issue is: without proper conversion rate tracking, it’s difficult to get an accurate baseline for current conversions… which means that if they decide to test their current efforts against different offers and other variables (headlines & body copy, button text, colors, images, videos, etc.), it will be almost impossible to determine what is converting best.
After all, how can you work on improving anything if you aren’t sure where you’re starting from?
How to Calculate Conversion Rate
A conversion rate is the percentage of people who take the action you want them to. So, for example, if you drive 1000 visitors to a squeeze page, and 60 opt-in for your lead magnet, you’ve gotten a 6% conversion rate.
60 actions ÷ 1000 visitors = 6%
The first step to calculating conversion rate is determining what action you want your visitors to take. Do you want them to give you their name and email address? Do you want them to purchase something? Do you want them to call you? Do you want them to provide their mailing address so you can send them more information?
Once you know what action you’ll count as a conversion, the next step is to set up tracking so you can gauge your conversions.
If you’re looking for people to opt-in for more information, an easy way to track conversions is to set up an offer page (often called a squeeze-page) and a thank-you page, and add a tracking script for both. On these two pages, you’re looking to track total number of visitors that land on the page. So if 1000 people visit your offer page, and 43 hit your thank-you page, you know you’ve gotten 43 people out of those 1000 visitors to convert.
Similarly, if you’re trying to get people to call your number, you want to set up a number to track calls. Many businesses make the mistake of using a call-to-action to have visitors call the main business phone number. While they may ask how they found the business, the information is often vague at best. Especially if the business is running more than one ad campaign, with more than one landing page. Tracking phone numbers through a tool such as Analytic Call Tracking or similar is a much more effective way to gauge exactly how many calls are directly generated by a specific marketing campaign & landing page.
Click-through rates (CTR) are a bit different than conversion rates, though they play a crucial role when it comes to driving traffic that converts. CTR is the percentage of people who click an ad. If your ad gets 1,000 impressions and receives 10 clicks, your ad CTR is 1%, which is a decent baseline percentage to shoot for (though you should continually work on better targeting & ad copy to raise that percentage.
On more advanced ad networks (such as AdWords), higher CTRs can result in a higher quality score, which means Google will reward you with a lower cost-per-click, so it’s a good idea to work on optimizing your ad CTR as much as possible.
Fortunately, tracking CTR is usually very easy – most advertising platforms provide these metrics in their dashboard. If they don’t, it’s a sign you should probably move to different ad networks that do provide this crucial information.
Tracking Conversion Rates All the Way Through
There is usually more than one important conversion rate to track for any given campaign. For example: ad CTR (click-through-rate). Many companies run ads without trying out a variety of headlines, ad body copy, images, different targeting, etc. This is a mistake, as some headlines will produce higher click-through rates than others, some body copy will convert better than others, and some combinations will convert better than others.
Until you test various combinations, you won’t know which combinations are your biggest winners.
Here’s where things get a bit more complicated: What is the conversion rate from someone seeing a particular ad, clicking the ad, going to the landing page for the ad, and taking the desired action?
For example, let’s use this scenario:
Your ad receives 10,000 impressions. Of those 10,000 impressions, 1,000 people click. Of those 1,000 clicks, 10 convert.
So your ad’s click-through rate is 10% (1,000 clicks ÷ 10,000 impressions = 10%). Your landing page converted at 1% (10 conversions ÷ 1,000 visitors = 1%).
Now, if you look at the 10,000 impressions vs the number of conversions, you get: 10 conversions ÷ 10,000 ad impressions = 0.1%.
0.1% conversion, from ad display to action… is that a good conversion rate? Does this type of conversion rate even matter?
Well, it depends.
What is the value of the conversion to you? Did you pay per impression, or did you pay per click? How much did each impression cost, or how much did each click cost?
If each conversion is worth $50 to you, you effectively generated $500. If you paid per impression and paid $5 CPM ($5 per 1,000 ad impressions), you spent $50, so you’re looking at $450 profit… not too shabby at all. If you’re doing CPM advertising, this type of conversion rate definitely matters.
On the flipside, let’s say you’re giving away a free report as a lead magnet, and you’re having trouble converting your leads into buyers – we can *almost* say these leads are worth very little since you aren’t capitalizing on them. Let’s pretend that out of the 10 leads you got (10 conversions), you’re able to sell one report for $37. That comes out to each lead being worth $3.70. If you paid $1 per click then you spent $1,000, made $37 gross, and lost $963. Ouch.
However, let’s say you’re a lawyer and each client is worth $10,000. (Note: there aren’t many lawyer PPC keywords under $30 – $100+ per click, but hang with me for this example), then you spent $1,000 (for 1,000 clicks at $1 each). If you convert one of those 10 leads into a client, you made $10,000 and spent $1,000 on advertising, meaning you pocketed $9,000 on the campaign… now we’re talkin’. However, that 1% conversion rate may still be pretty low (depending on your industry and how valuable each lead is), so it’s worth investigating if conversion rates can be improved.
The moral of the story I’m trying to portray is that conversion rates are a powerful statistic to know, but the two most important questions are:
- Are your campaigns profitable?
- Can they be more profitable?
If your click-through rates are low, but your conversion rates are high, you need to work on better ads.
If your ad click-through rates are high, but your actual conversion rates are low, you know you need to test your offers and figure out what converts better. In this case, your ad may not be congruent enough with the offer you present on your landing page. Without an accurate conversion rate, it could be difficult to determine if this is the case.
If both your ad CTRs and your offer conversion rates are low, it may be time to go back to the drawing board.
Conversion Rate Margin of Error
Please don’t drive 100 people to an offer and make a decision based on the results. The data provided from 100 people is almost never enough to make an educated decision about your campaign. Out of the first 100 people who see your offer, a whopping 30 may convert. Holy cow, you got a 30% conversion rate! Pretty solid!
Not so fast, though. Out of the next 100 people who see your offer, what if only 3 convert? That’s a 3% conversion rate. Depending on how valuable each conversion is, and how much it cost to acquire each conversion, that could still be a solid conversion rate.
However, you’ve now gotten 33 conversions out of 200 visitors, which makes your conversion rate 16.5%. Once again, that might be a very solid conversion rate, but it’s a far-cry from the 30% you received from the first 100 visitors.
A good rule of thumb is to have at least 1,000 visitors before you determine how well your offer is converting. For the next 800 visitors to your offer (after the first 200, mentioned above), let’s say that 50 converted. Now you have a total of 88 conversions, which is an 8.8% conversion rate (88 conversions ÷ 1,000 visitors). This is often still a great conversion rate, but again nowhere near the freak 30% you got from the first 100.
On the flip side, let’s say you got 100 visitors, and only 1 converted (a 1% conversion rate). That could be discouraging, and you might be tempted to pull the ad/offer. But what if, out of the next 900 visitors, you received 99 conversions? That would put you at 100 conversions from 1,000 visitors, making your conversion rate a solid 10%… and you may have never known the offer would do so well if you pulled it too quickly.
The takeaway from this is: the bigger your sample size (ideally 1,000+ visitors), the more accurate your conversion rate calculation will be.