What Is eCommerce Conversion Rate & Why You Should Care

A beginner’s guide in layman’s terms for retail & eCommerce marketers & business owners.

If you’re a small business owner or marketer in the Retail & eCommerce space, the words ‘eCommerce Conversion Rate’ should ring a bell. And, in case it doesn’t, we’ve included a brief definition below in layman’s terms:

Mathematically, your eCommerce conversion rate is the percentage of the total number of transactions over the total number visits over a given period of time.

To illustrate this, let’s say that in January 2018, you had a total of 5,000 visits to your organic dog food website, The Prideful Pooch. During that same period, your site processed a total of 128 transactions. Your eCommerce conversion rate would then be factored as:

If you’re using Google Analytics (which you should be), your eCommerce conversion rate is automatically populated provided that you have eCommerce tracking enabled. Pretty simple, right? If you’re still with us, your next question is probably: why should I care and where should my eCommerce conversion rate be? We’re glad you asked.

On the topic of why you should care: your eCommerce conversion rate is a key performance indicator (“KPI”) associated with how effective your website and marketing is at converting site visits to actual purchasers.

Here’s a real-life use case:

Let’s say that you own Stick It to Me, a brick and mortar retail store that sells customized post-it notes. Let’s also say that in any given day, you have 50 people visit your store. And, of those 50 people, only 2 people end up buying anything. It’s the end of the month and you’re processing payroll, paying taxes and tackling all of the other unsavory things associated with running a business.

In taking a look at your books and quickly realize that you’ll be out of business in a few months if your business doesn’t process at least 7 transactions per day. Perhaps you panic. Perhaps you make frantic calls to the bank asking for a small business loan. Perhaps you start to drink, who knows?

After the dust settles, you take a deep breath, take an honest look around your store and come to the conclusion that with some careful planning, you can increase your revenue with some creative thinking. With sales stagnant, you don’t have the money to renovate your store, but you do have some control over what your customers see and what they interact with when they enter your store. With a new sense of determination, you’re committed to ensuring that one out of every five customers that visit your store end up leaving with something.

After a period of testing sales promotions, sending email newsletters, trialing different in-store displays, and placing merchandise strategically, you’ve done it. Suddenly, it’s April and you’ve exceeded your expectations! Now, one out of every three people that enter your store end up purchasing something. Enthralled with your progress and extra zeros in your bank account, you plan a nice vacation for you and your partner and start planning an in-store remodel.

Overly elaborate anecdotes aside, let’s take a look at the math:

January 2018

  • 50 potential customers per day = 1,500 shop visits per month
  • 2 transactions per day = 62 transactions per month
  • Average transaction value = $126.25
  • Total monthly revenue = $7,827.25
  • Conversion Rate = 4.13%

April 2018

  • 50 potential customers per day = 1,500 shop visits per month
  • 5 transactions per day = 150 transactions per month
  • Average transaction value = $103.77
  • Total monthly revenue = $15,565.50
  • Conversion Rate = 10%

That’s nearly a 100% improvement in monthly revenue without costly advertisements and other promotions to get new shoppers in the door.

Why the lengthy example? Because in a digital world, it’s easy for us to forget the fact that our website visitors are people, and should be treated as such. For those of us that don’t devote most of their careers to drawing parallels between what happens on the web and real life, a certain cognitive dissonance between what happens online and offline is normal.

With a firm understanding of eCommerce conversion rates and why they’re critical for your business, it’s time to take a look at how you can go about to introducing some process to monitoring and improving them.

1) Establish a benchmark: You can’t know where you’re going unless you know where you are. Take a look at the last 365 days of your business using the math outlined above and outline our eCommerce conversion rate by month. We’ve already mentioned this, but Google Analytics is an excellent, industry-preferred tool for measuring all of your important web analytics, including eCommerce conversion rate. Get started by integrating Google Analytics on your website and ensuring that you have eCommerce tracking integrated.

2) Set some goals: With your background research finished, it’s time for you to dream a little bit. Take a look at your historical data and set some goals keeping in mind the (lengthy) example outlined above. Come up with some baseline and stretch goals for your eCommerce conversion rate. As a benchmark, we recommend 10% to 20% growth on the benchmark and 30%+ for your stretch goal. The stretch goal should be aspirational…shoot for the stars. You can do it. While every business is different, take a look at these eCommerce conversion rate benchmarks to gain some insight on where your business ranks.  

3) Get real about your business: Having a firm understanding of what’s important to the customers currently visiting your store is critical to coming up with strategies for how to get them to purchase. Ask yourself: are my customers price sensitive? Do they come to my store because I offer something that no one else does? Is the shopping and purchasing process easy?

4) Promote a sense of urgency: Perhaps one of the biggest kept secrets in the world of marketing is promoting a sense of urgency among your customers.

5) Measure, cycle, rinse repeat.

 

Completely lost? Contact us for a consultation on how we can help.