Conversion Rate Formula
This is a way of measuring consumer behavior when it comes to how often they are aware of a venture and how committed they are while engaging with it if they choose to do so at all.
The first thing to know is that this formula has many different faces and expressions depending on the business to which the conversion rate is attached.
Like many mathematical equations and formulas, or statistical information, the ability of visualize the information within a conversion rate and associate it with a phenomenon in action is more important being able to crunch the numbers on a spreadsheet.
Conversion is when customers and clientele perform an action according to a business’ or organization’s campaign design.
In the arena of trade and commerce, the ultimate purpose of a business is to make a profit and continue production as much as possible. In that case, conversions equal sales.
So, for a business to know its conversion rate it just has to divide the number of conversions (sales) by the total number of clicks on a site location (within any given time frame) and multiply that number by 100 percent.
It looks a little something like this: Rate = (Conversions/Leads) *100.
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The concept of conversion ratio is something that may not exactly translate to dollars and cents because it measures how much one channel of conversion transforms into some form of profit for a business.
This is used when a venture sets a definition for their conversion that is not based on money but still needs a way of knowing and measuring how much profit is made as a direct effect of customer behavior.
If a campaign wants its patrons to perform a certain action as a result of their contact with an email list and they follow through due to a particular incentive, then that is conversion.
Moreover, when one of these patrons makes a phone call and the person on the other line closes the deal on a sale, a conversion ratio is created.
This because there is a number of sales that can be compared to the number customers making phone calls.
If a well-timed email listing goes out to generate buzz, a little less than halve of the people contacted call in, and all of them buy widgets or a year’s worth of fresh widgets for home delivery the ratio of conversions to sales is 1:1.
These numbers point to either a super-slick email listing or a bang-up call center.
Calculate Conversion Rate
The best thing about calculating a conversion rate when analyzing the profitability of a business is that the term conversion does not just have to translate to sales or revenue.
As a matter of fact, conversion can apply to the number of phone call inquiries that are made to a business, or its outsourced call center, that come in over a certain period of time.
This also applies to the nature of the calls made. If an email campaign is sent out to 500 clients or potential customers that references a call in code for the holiday weekend and over that period of time 200 hundred calls are made voicing the code, then the conversion rate is reasonably high.
It is all about how many people are contacted during any given time span and how much the actual method of contact cost a business.
When email lists have functions like click through capabilities the methods of engaging potential clients and customers becomes more nuanced and advanced.
This requires more variations on the conversion formula and more sophisticated tracking expertise and technologies. There are all kinds of things to compare the numbers against, but it all comes down to what a business defines as its conversion.
Sales Conversion Rate Formula
Because marketing and sales is more complicated today than it was a few decades ago there are different conversion rate formulas just comparing the number of sales to people who walk in through the front doors of a brick and mortar building is not a sufficient tracking method for many businesses.
To this end, there are conversion rates that measure the Return on ads Spent (ROAS) and the Return On Investments (ROI).
The difference between these two conversion rates comes from accounting for the Cost of Goods (COG), which is commonly known as the cost of doing business. This number also goes by profit margin.
The ROAS simply has to deal with how much a business revenue a business sees as a direct result of its advertisement efforts.
It is a much simpler formula to follow that only needs the total number of conversions (sales or whatever the case may be) divided by the cost of advertisement itself.
It looks something like this: ROAS = (Conversions/AdCosts).
To get the ROI, all a business has to do is also account for the COG while adding it revenue. The formula for that looks like this: ROI = (Revenue – Cost) / Investment Cost X 100 (for %)
Lead Conversion Rate
When it comes to figuring out lead conversion rates things pretty much read the same way as they do when figuring ROAS, ROI, and other rates.
In the case of lead generation, the formula follows the same simple setup but has different variables in place to make the formula all work out.
It is figured by calculating the number of conversion (sales or whatever) divided by the number of leads and then multiply that number by 100 per cent.
If this formula seems a little simple and feels like it needs a little more meat and potatoes to it, there is another formula to complement it that makes good sense in the business world.
It calculates the cost per conversion from an advertisement point of view. That is to say it determines how much money is being spent to advertise and how much monies come in as a result of said form of advertisement.
It looks a little more complicated than some of the others, but the formula works just the same.
The first thing to do for this rate is to average out the cost of the form of conversions (be they emails, flyers or whatever). Then take that number and divide it by the percent of sales generated from the number of leads. The terms are complex, but the setup is basically the same:
CPC (Lead Conversion) = AvCostofCampaign / Percent of Sales from Leads.
Conversion Rate Marketing Formula
Any and every good professional has more than one tool in their box and certainly more than one level of skill while performing various tasks in providing service to clients.
The same holds true for those who understand, use and explain the different formulas for calculating the various conversion rates to be used in today’s digital business market.
There are formulas for Cost Per Click (CPC), Cost Per Thousand Impressions (CPM), Click-through Rate (CTR), and Cost per Acquisition (CPA).
These are on top of the ever-lasting and top priorities of basic Conversion Rate (CR) and Return on Investment (ROI). For the CPC, divide the cost (of a campaign) by the number of clicks spent while running it, which gives a very basic and not too insightful number as a starting place to make other calculations.
Along these lines, the CPM is figured by taking the Cost (of a campaign) and dividing it by the number of time someone actually looked at the screen alerting them, and then taking that number and multiplying it by 1000.
The CTR is a simple yet powerful formula that tells a business how many clicks a campaign gets by dividing the total number of clicks by the total number of impressions.
The CPA is the cost of advertisement divided by the conversions (sales or whatever). Even though the CR (R=C/L*100) and ROI (ROI = Revenue – Cost / Investment Cost X 100) formula appear earlier in this piece they cannot be repeated enough.
They are the bread and butter of knowing just how much profit a business is making.
Conversion Rate Formula Google Analytics
Even though knowing how to build and use a formula for figuring out conversion rates turns out to be a good thing and a powerful tool, the simple act of collecting the data, going over the number, and double checking every data point can be a business in itself.
Most professionals have enough to deal with while providing their service without having to add the task of counting beans to the list.
To this end, there are online tools that take the hassle and headache out of making sure that operation models and advertisement campaigns are bringing in revenue.
At the top of this list is Google Analytics. It’s free and makes short work keeping track of all those conversion channels. This tool has a dashboard that monitors site content and landing pages.
This is great because really making since of all the numbers through all four quarters of the fiscal years can be daunting. In the worst case scenario, it can actually take away from efforts that contribute to profitability.
Google Analytics tracks the number of visits and other features associated with a website designed for online campaign channels of revenue.
It takes a long view to get all the data and formulas right, and this tool does all the heavy lifting for businesses month by month.
But Google Analytics is not the only online tool available to entrepreneurs, businesses, or professionals. T
here are Google AdWords, Facebook Ads (includes Instagram Ads), Twitter Ads, and Pinterest Promoted Pins to help as well.
How to Determine Conversion Rate
One way to determine the validity of the conversion rates on paper is to plug in the values and see if they match up with what a business wants to see profit and operation wise.
But, before any of these facts and figures can be put next to one another a little plan laying is in order.
In other words, the leaders of a business or organization need to have a hypothesis in place as to what it needs to do to achieve the goals necessary to survive in whatever market they choose to invest their efforts, materials, and resources.
It is worth repeating that a conversion rate is not the same thing as a profit margin; even though they ought to have some kind of direct or indirect correlation.
A conversion is defined by some other action and the only way to know if a rate of conversion is working for a business is to compare the end results to the means of reaching a desired goal.
For example, conversion can include but is not limited to customers and clients submitting a form, making phone calls, starting an online chat, making a series of specific clicks, registering for a service, or starting a subscription.
Anything that builds a report between a venture and the general public is conversion, so the idea that a simple pen and paper spreadsheet to track these numbers is a fairytale just waiting to turn into a nightmare.
What to do About Formula for Conversion Rate
It makes no difference at all to just sit back and watch the numbers come in as profits stay stagnant.
For this very reason, it behooves a business venture to have a plan in place to execute when the numbers do not exactly put a smile on the boss’ face.
Just like there is more than one way to figure out conversion rates there are plenty of actions to take build good rates.
The first thing to do to boost online sales is to create and stick with a landing page. This page needs to evolve depending on the lines of revenue used and the ad campaign information coming being collected.
Following that, A/B tests need to be run in order to see how changes to campaigns effect consumer behavior as far a conversion rates go.
To do this, a landing page has to be split into two locations with customers sent to either one. There has to be variances between the two in order for comparisons in conversions to be made.
With the numbers in, changes can be made to one or the other site and advertisement design to yield better results.
With all these steps completed, the last thing to do is lather, rinse, and repeat.