In this lesson, we introduce the concepts of conversion rates and conversion rate optimization (or CRO), and how they can be applied to help increase your website's revenue.
Estimated Time: 17 mins
Tamboo is an all-in-one analytics, conversion rate optimization, and usability testing platform that brings together in one package all of the tools you need to improve your website's conversion rates and revenue.
To get the most out of this course, we recommend that you be logged into Tamboo and work through the lessons with your own website.
If you're new to Tamboo, you can get started for free to see first-hand how Tamboo can help you get more revenue from your website's existing traffic.
Let's take a quick pop quiz:
Which website would you rather buy?
Let's say you're in the market to purchase an existing website that you want to take over and run. Each website sells the same $100 product. Which one would you rather buy?
You may notice that Website A has much more traffic than Website B—in fact, Website A has 10 times as much traffic as Website B (1,000 monthly uniques versus 100 monthly uniques).
But despite that (fairly big) difference in traffic, Website A and Website B each make the same number of sales for the same product. Because of that, each website has the same revenue—$1,000 a month (10 sales of a $100 product every month).
So what exactly does that mean, and how does it make one of these websites a more attractive acquisition target than the other?
The key is to understand each website's conversion rate.
A conversion is be the successful completion of a desired action. In our example, the desired action is having visitors successfully complete the purchase of a product. In other cases, we may want our visitors to sign up for trial to a SaaS (Software-as-a-Service) application, sign up for a newsletter or email marketing campaign, or even download a free e-book. Each of these "events" are "conversions".
When we talk about the rate of something, we're talking about how frequently a particular event happens, usually as a percent of all activity. Right now, we're interested in the rate that our example website visitors successfully complete a purchase. To find that number, we divide the total number of purchases by the total number of visitors during a specific period of time:
# Conversions ÷ # Visits = Conversion Rate
Putting it all together:
A website's conversion rate is the rate that visitors to a website successfully complete a desired action.
Now let's calculate the conversion rates for our sample websites:
Website A's conversion rate is calculated as follows:
10 Sales ÷ 1,000 Visits = 0.01, or 1%
And Website B's conversion rate would be calculated as:
10 Sales ÷ 100 Visits = 0.10, or 10%
As you can see, Website B has a 10% conversion rate, which is 10 times higher than Website A's much smaller 1% conversion rate.
At this point, you might be wondering what exactly that means, and why a website's conversion rate matters in the first place. Let's find out.
If your goal is to buy a turnkey business that you can grow, you may have by now guessed that Website B is the more attractive option. That's because Website B has a strong conversion rate, sitting at 10%. For every 10 visitors to this website, a sale is made.
By comparison, Website A has a relatively low conversion rate, at just 1%. For a single sale to be made on this website, 100 visitors are needed. If your goal is to buy a "fixer-upper", Website A would probably fit the bill.
Why is that?
It's easy to see when you put your "business hat" on: Website B is a more effective and efficient business.
Website B requires one tenth of the visitors that Website A does to make the same number of sales. This means that Website B has "dialed in" their offering—people who visit Website B are ten times more likely to buy than visitors to Website A.
This makes Website B easier to grow.
For Website B to double its sales to 20 sales a month, it only needs to get 100 more visitors a month.
For Website A to do that same thing, Website A needs to find a way to get 1,000 more visitors each month.
In other words, growing Website A's revenue takes ten times as much effort as it would to grow Website B's.
The difference is even more pronounced when you consider growing either business to $10,000 in revenue a month.
To calculate the number of visits needed in order to reach a revenue target based on a particular conversion rate, we can use the following formula:
(Target Revenue ÷ Average Sale Amount) ÷ Conversion Rate = # Visits Required
To take Website B to $10k a month, you would need a total of 1,000 visitors a month at a 10% conversion rate:
($10,000 ÷ $100) ÷ 0.10 = 1,000 Visits
But to take Website A to $10k a month, you would need 10,000 visitors a month at a 1% conversion rate:
($10,000 ÷ $100) ÷ 0.01 = 10,000 Visits
As you may know, acquiring new traffic for a website can take considerable time and money. Between content creation, promotion, and paid acquisition activities, driving traffic has a cost. When making any kind of investment, you should consider the ROI, or return on investment, of that investment.
ROI, or Return On Investment, can be calculated as:
(Revenue - Cost) ÷ Cost = Return On Investment
Just to illustrate, let's say that we want to use a PPC (Pay Per Click) advertising campaign to drive additional traffic to our website in order to make 100 new sales. The CPC (Cost Per Click) for our ads is $5 a click. Using this information, we can calculate the marketing ROI for each of our websites:
Website B's marketing ROI would be calculated as:
Revenue = 100 Sales × $100 = $10,000
Number Of Clicks Required = 100 Sales ÷ 0.10 Conversion Rate = 1,000 Clicks
Cost = 1,000 Clicks × $5 Per Click = $5,000
($10,000 - $5,000) ÷ $5,000 = 1.00, or 100%
Website A's marketing ROI by contrast is:
Revenue = 100 Sales × $100 = $10,000
Number Of Clicks Required = 100 Sales ÷ 0.01 Conversion Rate = 10,000 Clicks
Cost = 10,000 Clicks × $5 Per Click = $50,000
($10,000 - $50,000) ÷ $50,000 = -0.80, or -80%
As you can see, using the same PPC campaign, with the same number of clicks, Website B doubles its money—while Website A actually loses money! A lot of money! ($40,000 to be exact!)
And that's the importance of conversion rates.
A website with a high conversion rate can:
While a website with a low conversion rate:
So how can that be?
After all, Website A and Website B both sell the same product—so what could be so dramatically different between the two of them?
In order to answer this question, we first need to understand what factors influence and affect conversion rates in the first place.
There are generally eight primary factors that influence and affect conversion rate performance:
Branding affects same-product website performance in the sense that a prospect, given an equal choice between two vendors, is more likely to select the company they have heard of before, or the one they have more positive feelings towards. Prospects may still "do their homework" by visiting a competitor's website, but if there is no substantial differentiation in product, price, or messaging, the prospect will typically make their purchase with the company whose brand they prefer. Branding also refers to the "image" a company projects to a potential customer. It is important that the image a company projects matches its customers' values. For example, if a business's customers value trust or security, but a business does not project those values, potential customers may choose to do business with a competitor that demonstrates those values instead.
Product Fit affects whether or not a particular product or service offering is a viable or suitable solution for a particular visitor. When people search for solutions, they often come across websites that look like they might be able to satisfy their needs. Once someone visits a website, they're often able to gather more information about the specific product or service offering and compare its features and capabilities to their particular needs. Based on this information, the website visitor may decide that the product or service they thought could solve their problem does not meet several buying criteria—or that it's not what they thought it was in the first place.
Pricing is a naturally obvious factor when it comes to purchase-making decisions. Purchasers today (both business and consumer) have more information available to them now than ever, and have become increasingly savvy about finding and using that information to aid them in purchasing decisions. Prospects can and will "comparison shop" amongst competitors. They will take into consideration differences in pricing models and price points, as well as available discounts and promotions.
Messaging is a crucially important factor in a buyer's decision making process. Messaging must be looked at "holistically". The messaging used externally in marketing must be matched and reinforced by the messaging used internally on a website. Any gap between "what was promised" to entice someone to visit a website and "what was delivered" when they visited that website will affect the rate at which that those visitors convert. In addition to this, on-site messaging can "cool" or "warm" a prospect. Bad messaging can turn away a prospect who was otherwise ready to buy, while good messaging can warm a previously on the fence buyer. Messaging must also convincingly convey the specific benefits a purchaser will receive with a clear call to action. A website's messaging becomes its sales person. Websites must make sure they have a good "sales person" working for them in order to capitalize on their sales potential.
Timing is a major but often overlooked factor that directly influences purchasing decisions. We all know that unless someone needs a product or a service at a particular point in time for a particular reason, they are unlikely to make any kind of purchase. For example, if someone doesn't feel that they need an accounting software program, they're highly unlikely to just wake up one day, run out, and buy one. But during tax season, at the start of New Year's, or when someone starts a new business, this "need" winds up on many people's radars. The key is to understand the buyer's journey—the process that all people follow as they become aware of a need and seek out solutions to fulfill it—and to align offerings to attract people at different stages of the journey. In addition to this, it is important to attract people who are experiencing different "buying triggers"—the events that lead people to making the decision to make a purchase for a type of product or solution. Because, as they say, timing is everything.
Channels are the different places and ways that website visitors are acquired. Channels can be anything from search engine results pages (SERPs), social media sites, paid advertisting, link sharing sites, plugin directories, blog posts on other websites, podcasts, or any other way that people become aware of a business and its offerings. People come to a website from different channels, and because of that, are exposed to different messaging before they reach that website. Very often, they are also guided to different pages on a website depending on the channel and/or messaging they were exposed to. Channels also "select" different types of people with different motivations. Someone coming to a website from a search engine results page is very different from someone coming to a website from a thought piece shared on social media. Because of this, different channels perform differently. Understanding how and why they perform differently—and leveraging those differences effectively—can lead to huge gains in traction.
Influencers are trusted sources of information that shape people's opinions and/or decision-making criteria. They can be people, websites, books, podcasts, blogs, or even other companies. Influencers, especially on social media, can help generate demand for a product or service, and can even "warm" prospects to a particular brand or product. Review sites also act as influencers, albeit in aggregate. A number of positive or negative reviews can have a direct impact on a person's opinion of a brand, product, or service. In addition to these types of "external" influencers, a website can use "internal" influencers as well. Very often, a website can simply "reference" existing external influencers, such as things said about them on social media by well-known individuals, the score they've received on a review site, an article in a well-known publication, etc. to great effect. Getting (and using!) testimonials from existing or even past customers that address specific buying criteria a website visitor is interested in are also powerful influencers. Another way that the power of influencers can be leveraged is through the creation of JV (joint venture) partnerships with businesses that compliment a website's offering.
User Experience (UX) is perhaps the most important of these factors, in part because it represents the culmination and orchestration of all of them together. A website's user experience, or UX, is determined by how users feel about a website and its offerings. It has to do with everything from how well a website, product, or service satisfies a user's needs to the kind and strength of emotions a user has with respect to their experience. A poor UX can invoke negative emotions or feelings, and can cause an otherwise qualified prospect to reject any offer presented to them—even if that offer would ultimately have proven beneficial to them. By contrast, a website that successfully delivers a positive user experience can warm qualified prospects to take a desired action, such as making a purchase, as well as encourage word of mouth marketing and even brand loyalty.
Of course, there can be other factors that influence conversion rate performance—after all, there are any number of things that a website can choose to do or not do—but these tend to be the primary ones that have the largest impact.
In our running comparison of Website A and Website B, it's easy to see how these factors can be responsible for the large difference in conversion rates between them:
As you can see, there are often many nuanced factors that can affect how one website performs against another, and how all of these factors (especially in orchestration) can significantly and substantial boost a website's conversion rates.
While this helps us better understand how and why Website B can be so much more profitable (and valuable) than Website A, many of us are not in the position of having a finely tuned and optimized website that performs at such high levels.
So what can you do if you find yourself being the owner of Website A?
Are you doomed to the trap of operating a low converting website that you can't successfully scale or grow? Or is there something that can somehow turn things around?
Thankfully, that's where conversion rate optimization comes into play (and saves the day!)
Conversion Rate Optimization (CRO) is the art and science of systematically increasing a website's conversion rates through iterative improvement of the factors that affect those conversion rates (as discussed above).
The process of optimizing a website's conversion rates is relatively straightforward, and involves:
Although this process is straightforward, it is both an art and a science, which can sometimes make it difficult to execute.
As a science, this process requires the collection and measurement of observations and outcomes. That might sound super technical and fancy on the surface, but what it really means is that you have to measure your conversion rates over time and collect as much information as you can about the various factors that influence and affect your conversion rates.
Trying to do conversion optimization without this information is like trying to find your way out of a room in the dark. In order for your efforts to be effective, you need to know what parts of your website are working well—and which parts aren't. Very often, a website does not need a wholesale redesign in order to start improving its conversion rates. Typically, there are "easy wins" that can be had—but you can only know what those "wins" are if you have the information that shows you what they are.
Using the information gathered, you're able to identify where opportunities for conversion optimization exist.
And that's where the art of this process comes into play. Depending on the factor you're looking to improve, this process can require you to get creative in order to understand why things are the way they are and how you should improve or correct them. What about this needs to be different? How should it be different? What angle should I be using instead? And this is where far too many people stop short and give up before they realize the results that they could have—because it's hard to "see" what needs to be changed if you're looking at it from the wrong angle.
Fortunately, that's where Tamboo comes in.
Tamboo helps bridge the art and science of conversion rate optimization.
That's because Tamboo gives you the measurements and metrics you need to science your way to success while simultaneously giving you the ability to step into your customers' shoes and see how they experience your website. Having this information at hand helps you grasp the art behind how you can optimize your website to better serve them, their needs, and their wants.
At this point, you may be wondering what a "good" conversion rate is.
After all, if you're looking to improve your conversion rates, it only makes sense to have a target that you should be aiming for, right?
Truth be told, like most other things in business, the answer is "it depends" (don't worry, we hate that answer too).
The reason why "it depends" is because different industries experience different average conversion rates. Ecommerce conversion rates perform much differently than info product conversion rates, which in turn, perform much differently from SaaS (software-as-a-service) conversion rates. (And even within SaaS, free trial conversion rates vs. credit card upfront rates differ dramatically.)
That's because each of these types of transactions are different.
When you purchase a physical product from an ecommerce store, that type of purchase is much different than when you puchase a digital info product. A software-as-a-service subscription is much different from either of those things. And booking a service appointment online is an entirely different story.
So when you're looking at conversion rates, it's important to remember that industry matters—and that different products and solutions within the same industry will convert at different rates.
With that being said, here are some industry average conversion rates that you can use as guidelines for your own conversion rate optimization efforts:
|Industry||50th Percentile (Median)||75th Percentile||90th Percentile|
|B2B (Business To Business)||2.23%||4.31%||11.70%|
|SaaS - Visitor To Customer (No Trial)||2.20%||5.00%||10.87%|
|SaaS - Visitor To Trial||8.40%||19.09%||41.50%|
|SaaS - Trial To Customer||11.00%||25.00%||54.35%|
Most people are shocked to learn that actual conversion rates appear to be so low.
But that's the reality of situation—single-digit conversions are the norm.
And this usually trips people up.
As we've discussed, the natural inclination is to throw more traffic at a website to try to increase sales. And, as we've also discussed, this is often ineffective in the long run.
That's because the fastest path to increasing revenue in the short-term (and to dramatically increase revenue in the long-term) is to focus on optimizing a website's conversion rates.
Because these numbers appear to be so small (think 1.84%)—it can be difficult for people to really grasp how important each percentage point can really be.
The key is understanding how much revenue each percentage point is really worth.
To calculate this, we can use the following formula:
(#Visits × Conversion Rate × Product Price) - (# Visits × (0.01 - Conversion Rate) × Product Price) = Revenue Per Percentage Point
If we were to calculate the value of each percentage point for Website A ($100 product with 1,000 monthly visits) assuming a 1.84% conversion rate, we would get:
(1,000 × 0.0184 × $100) + (1,000 × (0.01 - 0.0184) × $100) = $1,840 + -840 = $1,000
In other words, each percentage point ("just" 1%) is equal to $1,000 of revenue.
And because we're often dealing with such small numbers, it can be helpful to understand how much revenue a 10th of a percentage point (0.1%) really is:
Revenue Per Percentage Point ÷ 10 = Revenue Per 10th of a Percentage Point
In our example, a 10th of a percentage point is worth $100:
$1,000 ÷ 10 = $100
By raising our conversion rate from 1.84% to "just" 1.94%, we would stand to make an additional $100 a month.
And if we were able to raise our conversion rate from 1.84% to "only" 2.84%, we would be making $1,000 more from our website—every month!
But in reality, it can be much more than that when you consider the number of repeat purchases or upsells that you can achieve with additional customers. (That's a topic for another lesson!)
So by focusing our efforts on trying to "eek out" another percentage point by finding and refining the factors that influence and affect our conversion rates, we stand to substantially increase our website's monthly revenue—and set us up to be able to take advantage of acquisition channels that we otherwise wouldn't be able to with a low conversion rate.
Now that we've had an opportunity to explore what conversion rate optimization is and how it can help you measurably improve website revenue performance, let's move on to how we can start putting this art and science to work for ourselves.
We'll start by setting up some funnels to help us uncover and identify the hidden opportunities that await us on our website: