Conversion rate is an important indicator of the health of an eCommerce store. An eCommerce store is, essentially, a machine for converting visitors into buyers. Whatever other roles an online retailer’s site has, its ability to move people through the purchase funnel determines whether it can be considered a success.
Typically, conversion rates are compared over time: Is this month’s conversion rate better than the same month last year? But it is also useful to compare conversion rates to industry averages, answering a different question: Is my store performing as well as the competition and the eCommerce market generally?
What is a conversion rate?
A conversion rate measures the proportion of visitors to a store who buy a product. In fact, the definition is broader than that, covering any event in which a lead responds favorably to a marketing message. But, for eCommerce retailers, a sale is the most important conversion and a good measure of a store’s efficiency — although conversion rate has limitations as a performance indicator, as we’ll discuss in a moment.
A conversion rate measures the proportion of conversions relative to the number of visits in a given period.
(Number of sales / number of visits) * 100
If a store has 13,000 visitors in a month and makes 400 sales, it has a conversion rate of approximately three percent.
(400 / 1300) * 100 = 3.07
Three percent of visitors to the store bought something.
What is a good conversion rate?
The most accurate answer to this question is — it depends. But that’s not very satisfying, so let’s look at the industry average. According to Econsultancy’s Performance Benchmarks, the global average is between one and three percent. The store in the example calculation above is successful by that measure; its conversion rates are at the top of the average range. In fact, most stores have lower conversion rates. If your store is somewhere in that range, you shouldn’t be too worried, although there are other factors to consider.
The limitations of conversion rates
Conversion rates are important, but they are just one metric among several that eCommerce retailers should monitor. To take an extreme example, an eCommerce store that receives ten visitors a month and makes eight sales with an average order value of $1.50 has a conversion rate of 80%. That’s an excellent conversion rate, but it doesn’t bode well for the business.
An increasing conversion rate indicates that a greater proportion of visitors are buying products. That might mean conversions are increasing as total visits remain static (good). Or it might mean that conversions have stayed the same while traffic has decreased (not so good). Or it might mean some mixture of the previous two possibilities.
The store owner can’t be sure what their conversion rate says about the health of their store without viewing it in context with other metrics, including revenue, average order value, and, perhaps most important, profit.