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The history of web analytics has read a bit like the quest for the Holy Grail. We've gone through a list of candidates searching for the one true metric: Hits, Page Views, Visitors, Unique Visitors... stopping at each one to admire its purity and virtue while denouncing the heresy of whatever metric it replaced (usually, one whose purity and virtue we were just praising the week before).
While drinking from the wrong Grail in analytics won't melt your face like the bad guy in Indiana Jones 3, you may wish for some face-melting when you have to tell your boss how much money your bad conclusions just cost the company. This post will help you get control of your unhealthy obsession with Conversion Rate and avoid the most costly traps.
Conversion Rate Crash Course
Let's start with some basics, both for the newcomers and because the industry doesn't always agree on how to define terms:
There are many variations on conversion rate, and "Action" can mean just about anything – a click, a form submission, an RSS subscription, an actual sale – but let's keep it simple for now. So, let's say that for February your site received 10,000 visitors, and 450 of them took action:
Pretty simple, right? Don't get me wrong – conversion rate is powerful, and it captures an important bottom-line measurement. Problem is, it's just one number (well, ultimately, two numbers). So, what's missing? To answer that question, I'd like you to consider three scenarios...
Scenario 1 – Sacrificing Traffic
This is a situation that comes up frequently in PPC management – cutting traffic to raise your conversion rate. Here are a few examples to illustrate the point:
All three of these cases have 5% CR, so they're all the same, right? Of course not - all else being equal, anyone in their right mind would pick (C). Where people get into trouble is when they over-optimize for CR at the expense of traffic.
For example, let's say you have a classic PPC scenario: (A) a campaign targeting branded keywords with low traffic and high CR, and (B) a campaign targeting product keywords with high traffic and low CR. Your client starts complaining about low CR, so what do you do? You cut spending in Campaign (B). CR goes up, but the unfortunate side effect is that traffic goes down and overall Actions (read that "sales") go down with it.
SOLUTION:
Pay attention to both conversion rate and overall leads or visitors. Once you collapse down to CR, you've lost the top and bottom numbers and are left with just a ratio. If you're a PPC manager, set an acceptable Cost-Per-Action (CPA). Traffic within your CPA limit may be worth going after, even if CR isn't ideal – traffic that costs more than your acceptable CPA may have to be sacrificed. Don't just start chopping visitors to see CR go up.
Scenario 2 – Dropping Prices
Want the secret to increasing conversion? Cut your prices in half. What's that? You say you'll make a lot less money that way? Yes, you probably will. Of course, you'd never do anything that radical, but many people create sales, price pressures, and information architectures that drive people to the cheapest product. This can boost CR but cost you money.
Let's look at an example – say you get 1,000 visitors per day, and experiment with pushing a cheaper product ($29) over a more expensive product ($99) to boost CR:
Looking at the CR, it's great news: you doubled conversion. Unfortunately, your revenue also dropped 40%. There may be times when you're willing to make this trade-off to draw in new customers, but make sure you have all of the information you need to make that business decision.
SOLUTION:
If you make a change that could drive visitors to lower-priced items, make sure you track not only CR but also changes in the average purchase amount. If you're running an A/B testing scenario, consider tracking the mean or median purchase for both groups (use the median if your products span a wide price-range).
Scenario 3 – Losing Loyalty
An aggressive push to drive short-term conversion, including the pricing scenario above, could also lead to a drop in long-term revenue and customer loyalty. If you offer a sweetheart deal that pulls in new customers, it's possible that they'll take advantage of that deal and disappear forever. Today's Conversion Rate gain, if it's driven by bargain hunters or impulse buyers, could be next month's Conversion disaster.
That's not to say that sales and short-term incentives are never a good idea. Driving traffic in the front door is essential to building long-term relationships. The core point is that, whenever you take an action that may change the quality of your customers (and not just the quantity), you need to look at the big picture.
SOLUTION:
These metrics are a bit beyond the scope of this post, but there are a number of Key Performance Indicators built around repeat buying and the lifetime value of a customer. Whenever you pursue a short-term strategy, don't just measure CR, measure whether those new buyers are one-hit wonders or have real staying power.
It's Still Pretty Good
I don't want to sound like I'm bashing Conversion Rate. I use it every day and have driven real, bottom-line improvements for clients based on CR metrics. We just have to remember to never get so enamored with one metric that we neglect the big picture. Every web metric that has ever existed or ever will exist is missing some critical piece of information for some set of situations and has the potential to lead us astray. Think about your objectives, think about the possible outcomes, and most of all, think about all of the analytics tools you need to see that big picture.
This really is a great post providing some keen insight into analytics. Thanks!
On the topic of conversion rates, CRs aren't neccessarily relegated to post click metrics. A great ratio to look at is Action / Click, which gives great insight into how the front end of a campaign is performing. Understandably this is easier to do on the PPC side.
I have a scenario below which fits perfectly into the overall topic. Let's say you have two channels with differing CRs and CPAs:
A) 7% CR with a $15 CPA
B) 5% CR with a $10 CPA
A) clearly has a much better conversion rate, but B) is much less costly to bring in customers.
Now to make it an even playing field, let's assume 100 Visits for each and a $20 Lifetime Value, which would you choose, A) or B)?
If you're undecided, here is the outcome of that scenario to help you:
A) nets you 7 customers and a margin of $35
B) nets you 5 customers and a margin of $50
Compound 12 months to the formula and we have:
A) 84 customers and a margin of $420
B) 60 customers and a margin of $600
If you've chosen B) you have made over 40% more in margin, then you would have if you chose A), but if you went with A), you now have 40% more customers.
To Dr. Pete's point, there is no right or wrong answer here, it's all about using analytics to find the best way of aligning objectives to meet your business goals.
I was going to leave a comment below, but it fits too perfectly here under your comment LinkDev.
Like Pete, et al. said above, you can't use metrics in a vacuum. (OK, maybe % net profit might be a candidate)
If you use CR it has to be in context. You need to be able to see the entire picture.
Your comment above is a great example LinkDev. It has all the metrics needed to be able to put the CR in context.
Dr. Pete,
excellent post as usual, and great topic. The focus on CR in relation to SEO is only growing.
The most important point is in your close, and goes beyond the focus of the post... numbers without context are generally "worthless" at best, "dangerous" at worst; and you can't blindly look at a single number and expect it to "tell the story."
The notion of boiling everything down to a single number that could some how tell us all that we need to know is understandable, but rarely proves to be truly useful.
While the phrase "check the pulse" is a common one, a website's performance is much more complex, like an array of vital signs...each relaying a bit of information in isolation, but it is their collective story that is useful and should be used for measuring impact, determining tactics and decisions.
I've seen another issue with conversion rate and it relates somewhat to your 1st scenario.
I track Conversion Rate as one of the metrics for site performance as my client doesn't have an eCommerce site, but a lead gen site. The problem comes in when they run an employment ad the traffic increases and conversion rate drops as we don't count the employment applications as a conversion (for obvious reasons).
Another similar issue is spam bots. When they submit a form that doesn't have some kind of captcha on it, that counts as a conversion in GA, so you're conversion rate is somewhat off especially if it happens often.
We look at many metrics to make sure we're headed in the right direction, and the use of Annotations in GA now helps to keep track of things like Employment Ads running or email blasts going out, etc.
Great post Dr. Pete.
With virtually any metric, I think segmentation is critical, especially over the long-term. It's only natural that certain traffic sources and campaigns will convert very differently. If your organic traffic converts 25% less than your direct traffic and your SEO campaign takes off, it could look like your CR is going down, when your overall leads are actually increasing. You wouldn't want to cut your SEO spend just because of that CR drop. Best to look at that organic traffic by itself and see how segmented CR is affected.
To echo Pete, it's all about segmentation baby. Segment, segment, segment.
CR gives a good indication if you compare it with a steady volume. Even though I check CR continuously, I evaluate on "total goal value", even for a non-ecommerce site (I reverse calculate the estimated value of each action on a site). Thanks for the great post.
A great post highlighting the "don't put all your eggs in one basket" viewpoint. A holistic approach to search marketing requires a broad view of all the key data metrics when making decisions and that no one metric should truly trump any of the others.
Thanks Dr. Pete!
Go ahead and bash conversion rate ;-)
ROI, ROI, ROI. It's the only metric that matters assuming the goal is to maximize profit.
((revenue-variable cost) - Cost) / Cost
Pretty straight-forward on an e-commerce site. On lead gen sites you have to do the work to tag leads with the source data and track it through the sales cycle. For long sales cycles, it can be many months before you have good data to work with. Only in these circumstances do I fall back on other metrics temporarily, but at the end of the day, ROI rules.
Not to pick on you, and I'm generally a fan of measuring ROI, but I just want to illustrate my point that one metric is never enough to tell the story.
Let's say that all that you know is that your ROI is $150,000. Is that good? How much did you spend (that information is lost once you run the formula)? What's normal ROI for your industry? Are your returns competitive? What was your ROI last month?
If your ROI goes up 5%, should you reward your sales team? Did revenue go up or did costs go down? By boiling it down to one number, you've essentially lost all of that information.
Of course, I'm not suggesting that you would do this or that you wouldn't have those other numbers (like cost). Just illustrating that there's always a bigger picture out there, and it's relevant to profitability.
I think we are in agreement and I worry less about experts like you focusing time on conversion rate. The very point of your article is that there is not always a positive correlation between conversion rate and profit. So, I'm sure you are always checking whether your optimization efforts are adding to profitability. I always stress ROI because failure to keep focused on profitability is a costly and all too common mistake (Bludge: I fully encourage people to slap the next person that asks them “How many hits did we get?”).
Technically, my ultimate focus is contribution margin, not ROI. I consider everything else "feel good" metrics because they make people feel good when they improve even if they don't lead directly to improved profitability. This doesn't mean "feel good" metrics aren't important. They are critical to understanding visitor behavior and optimizing profitability. But in the end, any improvement in a "feel good" metric is irrelevant unless it leads to a higher contribution margin.
So, contribution margin will always be the final arbiter of campaign success or failure (assuming that profit maximization is the goal).
Value per visit (VPV) is also an interesting metric to work with and can be tailored to a specific company's revenue model - e.g. your site could be getting 4k monthly visits with a monthly profit margin (say in online sales) of 10k, so your VPV would be $2.50. If the following month you've done a great campaign that's spiked your visits but you notice the VPV has dropped to say $1.00 you know these visits are not converting the way you'd like etc.
Excellent.
I've been guilty myself of paying too much attention to a single metric (or even pair of metrics).
It's tough to catch our assumptions in action.
Last week I had a client come to me asking why, after a website redesign, their avg. pages/visit had dropped from 9 to 6. They were concerned people weren't spending enough time on the site.
It doesn't help that Google Analytics in this case displays a dropping pages/visit in red, indicating a definite negative.
In this case, less pages/visit meant the visitors were actually getting what they wanted faster. A dropping time on site can mean the same.
Overall few people enjoy the answer, "it depends" or "we need to look at more data" because it equates to more work - but since when does simplicity equate to accuracy?
That's a very useful article that I shall refer my less-digitally-switched-on colleagues to in the future. I still have various heads of marketing come to me and ask: "so... how many hits will we get?".
It makes me want to weep, I can explain metrics until I'm blue in the face, they'll smile and nod and compliment me on how knowledgable I am and next month they'll still come back and ask me about "hits". *facepalm*
We do have a bad habit of forgetting that our clients are often 3 steps (and 5+ years) behind us when it comes to analytics. Sometimes, you have to take what you can get and just try to move forward.
This is a good point when dealing with clients/managers. As it is necessary to contextualise the data before presenting it.
For example at the close of a recent free trial campaign in which I had used previous campaign data to target display sources that were more inclined to convert. This meant a drop in traffic but lower bounce rate and better conversions.
By contectualising the aims of the campaign the general manager could understand the campaigns are becoming more refined and wastage is being reduced.
Bludge, I've found your problem. Instead of *facepalm* you should do more of a *smackonbackoftheirheadwithclosedfist* :)
(disclaimer - I'm really not a violent person)
edit - most of the time at least.
Could you imagine giving a presentation on this to upper management? "Before you start, let's go with the highest return. Ok, I think we're done here. Great work. I'm glad we had this talk. Keep me updated. Could you please close the door on the way out? Thanks."
LOL! Have we worked at the same companies Kien?
Conversion SEO is a very important part of SEM.
I think every webmaster should spend more energy on analyse the conversion.
I love this topic and how it relates to what clients want to see.
I was recently asked by a client about their PPC campaign "well, what's an industry standard for conversion rate?"
Thankfully, they have their stated CPA, which is a much more meaningful metric that I'm happy to report on.
Conversion rate and all the other stats are tools to help increase revenue.
It's tough when a client gets focused on meaningless (I mean "feel good") metrics.
Rat. I forgot to add this above, but I'm not editing my comment above 'cuz it's too much work stripping out the breaks.
(Note to devs - what's the deal with that anyway? Is it a site bug, or just because I use Opera?)
Anyway, I wanted to add this:
Great post Dr. Pete. I'd love to see more Conversion/Usability posts from you anytime you feel inspired.
tks for you to post,i think this is a great BLOG though it is result in so many debate .
Don't get me wrong, not a bad article for an absolute beginner to conversion optimisation, however I feel most people who read this blog would already know this as its seriously pretty staright forward stuff.
I agree with you regarding your thinking towards conversion numbers. They're like pirate codes... more what you'd call "guidelines" than actual rules. :P
I think it's important to keep in mind that when you're doing web analytics, you're looking at trends, nothing more solid or weak than that. Not that I'm dissing trends, they are incredibly useful. You can get into especially dangerous territory when you're defining some of the trends yourself; it's important to keep a realistic perspective of what that trend means to you... and what it doesn't!
Thanks for the great post.
I think the most important metric will alwyas be ROI. But as you say, not one metric ever tells the whole story. I look at all the other metrics to get the full picture so I can make more informed decisions when optimizing for... ROI. :)
- Evan
I think what's also important is too look at conversion rate of return customers vs. new customers.
For Scenario 1, if you decide to sacrifice traffic then it will most likely be new customers traffic then you'll definitely spend less but won't bring any new blood to your business.
If you're dropping prices, then you'll probably see a big impact on return customers revenue as they'll know first hand that products have become cheaper.
If you decide to "lose loyalty" then to your point you're getting new customers but what's their true value?
As you get more new customers on your website, your overall conversion rate will decrease. Then the next big metric is retention rate and not just conversion anymore.
Dr. Pete
Great post for calling attention to Conversion Rate. I'm a big believer in conversion rate because it is a great starting point to understand the moving parts that effect the funnel of your business that Ultimately leads to ROI (per the previous comment). In fact, for businesses without a traditional sales process there may be multiple conversion rate metrics in the funnel (in my case B2B sales). All of which can illuminate successes and bottlenecks in a purchse process.
CR presents an easy to see benchmark about your business of non-siloed metrics in which all stakeholders (clients, analyst, finance,sales, marketing, shareholders, etc) can see the relationships that visits and actions have with each other ( ie. effect on capacity planning, revenue forecasting, marketing spend, inventory mangement, etc.) . To your point, more of both is better, but more actions per visits is best. Cue conversion rate optimization testing.
I've always been a big fan of of looking at all the metrics in GA before making a decision. I like to export my data, sort it by unique visitors, and then create separate tables. One ordered by CR and the other by actual conversions. It's interesting to see how different the tables can actually be. As far as one metric to rule them all, some sort of metric you can create yourself by combining all the metrics you feel are important and creating what i would call a fitness score to see how a product or campaign is performing. Great post over all. Great comments as well.
Nicely covered points for improving the conversion rate doc. Conversion rate is one of the most important things to care about on your website statistics :)
Great article! CR is a very important aspect of SEO, and so is conversion optimization. It is a great way to get a better ROI. But I do understand what you are saying about people spending too much time on CR optimization.
Bookmarked.
Thanks for this great article... It'll give me some juice to talk with my boss or clients when I'll feel my face should melt down! ;)
Also, what I get from your article is that CR is always relative to the number of visitors on your site - Both get along, and it would be a bad idea to consider one regardless of the other.
Great stuff doctor!
(Now put down your pants, and cough...)
Ok... This joke was not really good... But thumbed down for this? :) Come on! It was friday!
I wasn't offended or anything. Mildly disturbed, but not offended ;)
Lol... Yes I guess it's definitely disturbing!
Funny how the word "doctor" can give me strange toughts...
Please forgive me Pete. And I'm glad you're not offended! :)
Nice article Dr Pete. Thanks :)