April 03, 2007

Conversion Rate Is No Longer An Appropriate Measure Of Website Effectiveness

It might be a good time for our friends, the web analytics folks, to help us evolve the concept of conversion rate.

I recently saw a report where a business categorized good customers as of February 1, and measured website visitation activity during the month of February. Here's what this business saw (numbers are altered, the point is still easily made).
  • There are 125,993 good customers as of February 1, 2007.
  • Of the 125,993 good customers, 87,327 visited the site during February (69.3%).
  • On average, the visitors had an average of 3.41 visits during February.
  • Of the 87,327 visitors, 15,719 purchased merchandise on the website in February, purchasing an average of 1.10 times, yielding 17,291 orders.
We typically report an overall conversion rate --- something paltry like 3.29%. Then industry pundits and vendors jump all over us, telling us how ignorant we are regarding website design, failure to convert shopping carts, you name it.

If we look at actual customer behavior, we see a different story.
  • The website converted 15,719 of 87,327 visitors during the month of February.
  • 15,719 / 87,327 = 18.0% of the customers who visited at least one time purchased something during February. This is what matters!! Track this metric, year-over-year, and see if this metric is improving.
  • In terms of visits, 17,291 / 297,785 = 5.8% actual conversion rate for this segment of good customers.
Conversion rate is rapidly becoming an unimportant metric, when viewed within the context of actual customer behavior. Conversion rate is dictated by software. We want to let our customers dictate how they want to use our websites.

If a customer wants to visit your site eight times before making a purchase, then let the customer visit eight times. Don't agonize over conversion rate because the customer wants to visit your site often. Measure monthly conversion rate instead!

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