What is a Conversion Rate?
A conversion rate is the percentage of people or companies that move from one stage to the next stage in a process. Common examples include the proportion of people who go to a web page and go on to sign up, and the proportion of people who trial a product and end up purchasing.
The term has been borrowed from the idea of conversion in religion. In sales and marketing, the main goals of measuring conversion rates are to identify weak spots in a company’s customer acquisition process. This is also known as conversion optimization. It is also used as a metric for comparing performance of differing marketing initiatives. Various frameworks are used when examining conversion rates, including digital marketing funnels, sales funnels, brand health, and the hierarchy of effects.
Consider the brand health data for a grocery store, shown below. The conversion rate from awareness to visited in the last 12 months is 94% (93/99), for visited last month relative to visited in last 12 months is 87% (81/93), and so on. The big weak spot evident in this conversion rate analysis is that customer loyalty is a problem, with only 19% of those who visited being loyal (presumably they visited due to convenience or a price discount of some kind).
You can identify weaknesses in conversion by comparing conversion rates over time, between key subgroups, and by products. You can also use them to understand the effectiveness of different initiatives. For example, it is common to use conversion rates when evaluating performance in A/B testing (e.g., comparing two different page designs, and seeing which results in the better conversion rate).
Conversion rate frameworks
Many frameworks are widely used when analyzing conversion rates. In digital marketing, there are many variants of a funnel (which is a diagram like the one above) showing different stages of the acquisition process, such as: impressions (e.g., by ads, social media), visiting the home page, searching, adding a product to a basket, going to checkout, purchasing, and regularly purchasing.
In selling a funnel is also common, with stages like: cold prospects, warm prospects, marketing-qualified leads (who have demonstrated some threshold level of interest), sales-qualified leads (who have been identified as being worth talking to), opportunities, trialists, and customers. The specific funnel stages depend on the business model of the sales organization.
In retailing, funnels are also used but tend to be called brand health metrics, showing various movements from awareness through to loyalty, as in the example above. If you would like to create a brand funnel, we've created a handy guide for you.
In markets with heavy amounts of brand advertising, the hierarchy of effects model is also common, tracking conversion through the stages of awareness, knowledge, consideration, preference, purchase, and recommendation.
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