Importance of Conversion Rate

Don't Underestimate the Importance of Conversion

At IPG, we consider a website's conversion capability to be "Productivity." While on the surface it is easy to say a higher conversion rate is good, having a high conversion rate also gives you a lot of other options you might not have thought about.

I am continuing the trend Don started with his last blog entry that spoke more to what we call "bounce rate." A visitor bounces when they get to your website and then leave without ever looking at more than whatever page they landed on. In Don's story, it is the person who comes to the window but never steps inside.

Conversion rate is probably one of the most (if not the most) important metrics to track for a site. It amazes me how many people don't know the conversion rate of their site. It's absolutely critical to know your conversion rate if you are spending money to drive traffic through pay-per-click (PPC) or some other means, and here's why.

Conversion Rate Directly Affects Your Cost Per Acquisition (CPA)

Let's take a theoretical example. Widget Emporium sells the same widgets as Widget's R Us (I know, the names are uninspired). Both run e-commerce stores and both advertise through PPC. However, Widget Emporium's website is easily navigated, has great specials, and generally converts about 10% of the visitors. Widget's R Us's website uses a homegrown shopping cart, is hard to navigate, and only converts about 5% of the visitors. If both stores sell a widget for $50, and $5 of the sale is available for marketing, let's look at how the two companies can market themselves:

As the example shows, Widget Emporium can afford to pay twice as much per click. This means Widget Emporium will show up higher on the sponsored search and is more likely to have a higher click-through-rate. The higher click-through-rate means Widget Emporium could spend more every day before having 100% reach so they can bring in more customers and more sales! Alternatively, Widget Emporium could reduce the CPC inline with Widget's R Us and have a CPA of only $2.50, boosting profits on the same number of sales. Even at the same bid, Widget Emporium will likely have a higher Quality Score and be above Widget's R Us in the results anyway.

Don't Pay Too Much For Your Clicks

It is very easy to get caught up in the position game and end up paying too much for your clicks. Unfortunately what often happens is a few companies don't pay attention to the right metrics and overspend for a particular keyword. For example, "Orlando Resort" is currently going for about $2.45/click (as of June 24, 2010). A typical resort is going for about $69/night right now in Orlando. With typical conversion rates for resort sites in Orlando around 4-6% this means everyone who is competing at the $2.45 level for "Orlando Resort" is spending between $40.83 and $61.25 per reservation!

We often have to explain to our clients why they don't show up for a particular keyword or why we haven't included it in their campaign. Most of the time it is because the keyword is too expensive and their competition is simply not paying attention to what they are paying for their sales.

So whether you have someone like IPG managing your Internet marketing or you are doing it yourself, make sure you know your site's conversion rate and how it affects your bottom line.