What is conversion rate and how to optimize it?

This post was originally published on our blog: https://www.tractific.com/blog/what-is-conversion-rate-optimization

Conversion rate is one of the most important measures of the success of an online business. It is the percentage of users who take a desired action, or the percentage of users who "convert". If you have a website that sells laptops, for example, the desired action would be to buy a laptop. The percentage of traffic that ends with a laptop sale out of all traffic would be your conversion rate.

How to calculate conversion rate?

The most basic calculation of conversion rate is dividing the number of times the desired action was performed to the total number of sessions. This, by itself, gives you a good idea of your marketing and UX success. However, there are many other types of conversion rates to optimize a specific part of your marketing.

Click conversion rate is the percentage of converted unique users, calculated regardless of how many times they converted. For example, a user might have visited your site 10 times and bought 5 laptops, but these numbers are disregarded when calculating click conversion rate, and both are only counted as 1.
Marketing channel conversion rate is the conversion rate calculated separately for each different source of traffic. It is mainly used to decrease ad spend or increase marketing effectiveness by cutting out or optimizing non-converting marketing channels. For example, if your Google Ads conversion rate is 0.5%, and all other marketing channels convert at 5% on average, you have to change something about your Google Ads campaigns, or kill them altogether.
Individual ad conversion rate is the conversion rate calculated separately for each different ad. It is mainly used as an A/B test metric for ads.
Page-level conversion rate is the conversion rate calculated for each individual page. Most medium to bigger sized businesses have multiple landing pages. Some of them are bound to convert more than others. Comparing these pages in terms of conversion rate helps prioritize pages and spend more at marketing certain pages.

Why is conversion rate important?

Conversion rate is one of those metrics that gets a high place in every KPI list you encounter, it is even everything in some cases because it gives you an idea of the quality of your UX and how your customers react to it. If customers have difficulties navigating through your website, accessing information, or finding where to buy your product, then your website's conversion rate will be low. Conversion rate is also important because it is not directly affected by your traffic, which means that you cannot increase it directly with ads. With the same traffic, you can double your conversion rate thus your sales by improving your UX. A very small change, such as making your call-to-action stand out more, may yield a higher amount of sales without increasing the cost.

How to optimize your user experience for more conversion?

So far we talked about the definition of conversion rate and the relationship between UX and conversion rate. Now let's talk about how to design better UX for higher conversion rates.

You can spend a ton of money on ads and double or even triple your traffic but in the end, customers will look at your website to buy, not your Google ad. When they look at your website they must understand what you do in the first 2-3 seconds. In order to achieve that you must tell them what you do in really simple terms in the headline of your website. If they do not understand what you do when they first open it, they might leave the website and that would be unfortunate.

You can observe another person while he/she is navigating through your website and ask them what they like or dislike. And you can understand what an average customer can and cannot understand on your website. You can do it by yourself too by trying to look from a customer’s perspective but it is not recommended since you will probably be biased.

Analyze your data and change your website. You can analyze your data and see what you did wrong and what you should change. For example, if most users leave the website without scrolling past the middle and the pricing section is at the bottom, then you should probably replace the pricing section.

Pitfalls in conversion rate optimization

Optimizing your website's conversion rate must be an operation that is continuous throughout your business' lifetime. However, some people try to increase their conversion rate by decreasing prices or even decreasing the cost, but forget that other metrics get negatively affected by some tactics. An effort to increase the conversion rate using these tactics might backfire by decreasing sales. One example of this is decreasing prices. A price decrease might have 2 negative results:

The sales and the conversion rate might increase as expected. However, the increase in sales may not cover the revenue decrease that results from decreased prices.
The traffic might be coming from a price inelastic audience. Since this audience will not factor your price decrease in their decision to buy, the conversion rate may not change, and you may only see a decrease in revenue without any actual gain.

Since sales largely depend on the price and the price elasticity of your customers, if you try to increase your conversion rate by decreasing your prices it might backfire because your customers might be price inelastic. Thus even if you lower your prices your revenue will decrease due to the fact that your audience will not notice the price difference. So your effort to increase your conversion rate will actually lead to a decrease in revenue. A high conversion without a higher revenue is, obviously, useless.

On the other hand, if your customers are price elastic, then they might convert more if you decrease the price. Eventually your conversion rate will also increase. However, you should be careful with numbers, because your revenue might decrease as well. If you decrease the price from 100 to 60 and your conversion only increase from 50 to 60, then your revenue will decrease but your conversion rate will increase.

The right way to act, therefore, is to know your audience and to avoid highly risky and untested arbitrary assumptions

TL; DR,

Conversion rate is the percentage of users who perform a desired action. Conversion rate optimization is largely dependent on the experience of your customers. If they don't understand, they will not convert. Thus, UX is essential for the optimization of conversion rate. You should aim to continually change your website by analyzing your data and improve your UX. You can achieve it with a variety of methods ranging from observing someone else navigating through your website to using complex data tools. Either might work but the most important part is the continuity of optimization. However, if you don't know your audience, or if you don't take into account how your optimization changes other metrics, you may actually end up with less revenue.

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