Blog | Marketing Madness

Do You Know Your Conversion Rates?

25/07/2014

Conversion metrics is one thing that I still find a lot of businesses don’t have the answers to. Yet it’s one of the first things to know when looking to build upon your current marketing and sales performance.

When it comes to websites, I like to know exactly how many visitors it takes to trigger a sale on an eCommerce website or, for a service provider, the number of new enquiries or leads.

If you ever want to get a true understanding of your conversions then there are a few things you need to do immediately;

    • Start using your website traffic tool (i.e. Google Analytics or Clicky)
    • Use a CRM or Excel spreadsheet to log all the enquiries you receive, along with the outcome
    • Start asking new enquiries or customers how they found you

Note: When asking people where they found you, some people will say “The Internet” but most people will say “Google”. That’s good enough for me because it usually means they stumbled across you – which is exactly what we need.

What’s Your Conversion Rate?

It’s important to point out that the conversion rate we’re working out for service-based businesses is different to that of product-based businesses (eCommerce).

With service-based, the goal we’re measuring is the number of enquiries. However, with eCommerce sites, the goal is number of sales.

I don’t tend to measure the number of closed orders/sales with service-based businesses because there’s usually a sales process between the website doing its job and the sale being made.

However, with the data you collect in your CRM or Excel spreadsheet, you’ll be able to measure the performance of your off-site sales funnel and tweak accordingly if needed.

So, let’s work out your website conversion rates;

1. Total Number of Visitors

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Log into your Google Analytics (other analytical tools available!) and look at the total unique visitors you received for a given time frame.

I usually look at twelve months worth of data because I believe this takes into consideration almost all the possible seasonal factors and will have captured behaviour from almost every type of prospect/visitor.

I personally believe that you’ll get a more accurate view of your conversions if you use “search traffic” and “referral traffic”. Simply put, this is because these are more likely to be strangers who are purely influenced by the impression your website makes and the key messages you put across.

This should give you an idea of how much impact your website design can have on your business.

2. Total number of enquiries / sales

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The next step is dependent on the type of service you provide; whether you’re a service-based business or you sell products.

For service-based businesses; go to your CRM or Excel spreadsheet and count up the number of new unique enquiries you received.

For eCommerce businesses: go to your shopping cart (or to GA if you have eCommerce tracking enabled) and see how many orders have been placed.

3. The Maths Bit

Simply divide the answer you received in point 2 by the answer you received in point 1 – which should give you a number along the lines of 0.03, 0.15, 0.015, etc…

Now, Lets Put A Monetary Value On Things

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When you truly understand your conversion rates you can start assigning monetary values to each visitor as well  as each conversion. You’ll then see how we can use these metrics to forecast potential return on investments which will be key indicators when measuring the potential risk on any given online marketing campaign.

1. The Value of A Visitor

This is really important to know as you can then assign an average value for every visitor and, using tools like Google Adwords, work out what your maximum bid should be.

The easiest way to do this is to take the total revenue of leads/sales you received through the channels and time frame you measured at the start and divide the net profit by the total number of unique visitors. The figure you see on the calculator should be converted to currency and this becomes the value of a visitor.

What this means is, that by the time you’ve made your next sale, the monetary value of your visitors should be round about the same.

2. The Value of Conversion

For eCommerce businesses, this is simply the average value of a sale. But for service-based businesses, it’s the average value of a lead or enquiry.

To work this out, simply take the average order/job value and divide it by the average number of enquires to make a sale. So, for example, if your average job is £600 and you operate an approx. 25% profit margin – then the average conversion is worth £15.

Do Some Forecasting

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Take your conversion rate, multiply it by the number of visitors you expect a marketing campaign to generate and then this will give you an indication of what you should expect to receive.

Here’s an example based on an interest you may have for Google AdWords;

    • Let’s say, over the course of 30 days, you’re looking to invest £1,000 into Google AdWords
    • The traffic estimator tool is saying that this should bring you 3,030 clicks based on an average cost per click of £0.30
    • Multiplying 3,030 by your conversion rate (let’s say 0.03) an estimated number of enquiries (or sales) would be 90 (rounded down – be conservative!)

When working out your estimated return on investments, both service-based and product-based businesses would approach this in different ways;

Service-based businesses

    • We know that every 10 enquires leads to an account or contract (so you’ll get 9 new contracts) and with your average “initial” contract/job value of £600, this bit of marketing could generate you £5,400 worth of revenue
    • Minus the £1,000 invested into AdWords will leave you £4,400 and based on an average profit margin of 25% your net profit from the campaign will be £1,540
    • If these numbers turn true, then for every £1,000 you spend in AdWords you’ll generate £1,540 net profit

eCommerce businesses

    • We’ve worked out that over 12 months, an average customer spends approx. £100 with you, with an average margin of 25%
    • Therefore this bit of marketing should generate you approx. £9,000 throughout the course of the year (so long as you stick to your retention strategy)
    • Taking into consideration the £1,000 you invested into AdWords, the net profit you should make from this campaign is £2,000
    • If these numbers turn true, then for every £1,000 you spend in AdWords you’ll generate £2,000 net profit

Please note that these figures are purely for example purposes and I would strongly recommend you carry out your own analysis to work out your potential return. However this can’t be done reliably without truly understanding your conversion rates.

So What’s Next?

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When you have a better understanding of your current position, you can then use tools like CrazyEgg to figure out what people are actually doing on your website. You can see where they are are clicking, what part of your website stays on their screen the most and what are the “hot spots” that are catching their attention.