March 15, 2009

Mega-Metrics: Monthly Conversion Rate

Almost all of us have analyzed the results of marketing activities via the "conversion rate". The online industry is fueled by conversions. Directionally, the metric works.

And yet, the metric is fundamentally wrong.

At Nordstrom, we analyzed our multichannel shoppers to death. We knew the following happened, on a monthly basis --- called the "3-2-1" rule.
  • The multichannel shopper visited our website three times a month.
  • The multichannel shopper visited at least one store two times a month.
  • The multichannel shopper purchased one time a month, usually in a store.
An online conversion rate is woefully inadequate when measuring this type of behavior. So is shopping cart abandonment. All we really care about is that, over a period of time, did the customer buy from us? We don't care how the customer got to the end result --- we only care about the end result!! With that in mind, conversion rates and shopping cart abandonment rates are feckless --- they simply do not measure how customers actually behaved.

While still flawed, we evaluated a "Monthly Conversion Rate".
  • Take all customers who visited your website in the past month.
  • Of those visitors, what percentage purchased something, in any channel?
  • Divide monthly purchasers by unique monthly visitors.
Now some of you will send me e-mail messages and leave anonymous comments, nitpicking the fact that I forgot to think about concepts "A", "B" and "C". And you'll keep using conversion rate as your favorite metric. Life is richer when individuals have different ideas for solving problems.

What is important is the business intelligence you gain from a monthly conversion rate. All of a sudden, you realize that your conversion rate isn't a measly 4.398541842304%. Instead, your website facilitates a monthly conversion rate of 37% across all channels. Heck, you're not the failure that the vendor community portrays you to be!!!!!!! You're actually more successful than you thought. That's not a bad thing.

So instead of beating me up over all the reasons this metric is wrong, work with your BI team, or with Coremetrics/Omniture to create this metric, and start enhancing the way you evaluate your business --- pick a different timeframe or metric --- just do something to advance your industry!