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A Deepdive Into E-commerce Conversion Rate

  • What is your conversion rate?
  • Why does it matter?
  • How can you improve your conversion rate?

Improving your e-commerce conversion rate is one of the most profitable activities you can invest in. Take Horloges.nl as an example.

Horloges is a Netherlands-based e-commerce store selling watches. When the e-commerce brand tweaked its website copy to add the promise of a “2-year guarantee” for watch purchases, orders skyrocketed 41%.

Conversion Rate Optimization

What Is Conversion Rate

Depending on who you ask, there are about as many definitions for “conversion rate” as there are marketing experts. We take the pragmatic approach for e-commerce optimization.

What you really care about is the number of conversions you are getting from all the traffic you are driving. Here is the working formula to calculate e-commerce conversion rate:

Conversion rate = number of purchases / number of unique visitors

Let’s see an example of e-commerce conversion rate in action.

Suppose that Mia runs an e-commerce store and sources all her traffic from pay per click (PPC) advertising. Over the course of a month, she drove a total of 36,000 visitors from Google Ads. Of these 36,000 unique visitors, 1,200 bought products from Mia’s store. Meanwhile, 3,000 of all visitors also subscribed to Mia’s email newsletter. Mia wants to know her e-commerce conversion rate.

Conversion rate = 1200 / 36000 = 3.33%

In this example, it helps to split the data into two parts: order conversion rate, and opt-in conversion rate. As you can see, we take into account only the number of actual orders in calculating Mia’s e-commerce conversion rate.

As in Mia’s case, when visitors to your store sign up to receive your newsletters or other opt-ins, that’s also a “conversion event.” However, it does not put money into your pocketbook, so you should not mix opt-in conversion data with order conversion data. In this example, we can calculate a separate conversion rate for Mia’s newsletter opt-in using the newsletter data:

Conversion rate = 3000 / 36000 = 0.0833 = 8.33%

When optimizing your store to convert better, give priority to order conversion. Optimizing your opt-in offers, while important, should play a supporting role to order conversion.

Why Does Conversion Rate Matter?

A low conversion rate, compared to a higher one, means that your store does not do a good job of turning visitors into buyers. This could have any of the following implications:

  • Your store’s design is off putting to online shoppers
  • Your target market is not interested in the product you are trying to sell
  • You are sourcing traffic from a poor quality source, such as banner ads on spammy sites that are not niche-relevant for your store
  • The product copy on your site is unappealing to users

When your e-commerce conversion rate improves, your customer acquisition cost goes down. As an example, suppose you were acquiring customers from PPC advertising with a 2% conversion rate, and your customer acquisition cost was $20, with an average order value of $60.

Conversion Rate 01

Suppose, through conversion rate optimization and A/B testing, you were able to double your conversion rate. With a 4% conversion rate, you are no longer spending $20 to acquire a single customer, since you are now acquiring two customers for the same budget as before. The doubling in your conversion rate means that your customer acquisition cost, now, is actually $10 per customer as opposed to $20 before.

Conversion Rate 02

In addition, return on ad spend (ROAS) improves from 3 to 6, using the figures in our example. Your store’s profitability goes up as well since you have lowered the advertising cost to acquire each order from $20 to just $10.

Just improving the e-commerce conversion rate sets off a cascade of positive forces moving in your store’s favor. Since your store is converting better, you save money on acquiring the same number of new customers you used to do before. Now, you can afford to put those new savings into bidding more in PPC traffic bids. When your conversion rate is higher, you can bid higher and win more PPC auctions, leading to better success against your competitors. This is why it pays to optimize your e-commerce conversion rate.

How To Benchmark Your Conversion Rate

Hopefully, we could agree on the importance of conversion rate optimization for your online store’s revenue.

But here is the big question: How do you judge whether you have a good or bad conversion rate?

A simplified answer would be to check the industry benchmark to gauge where your business stand compared to the peers. 

This is an easy solution most have resorted to, which gives you something to aim for (or to be smug about if yours is higher than the industry standard.)

Let’s have a look at eConsultancy’s benchmark figures.

Conversion Rate Industry Standards

According to this data, the average conversion rate ranges from .90 to 2.90%. Home and Garden converts at a measly .60% while the food and drink sector converts at  2.40%.

Now you have a picture of roughly where your position is among peers. You could, therefore, work on your conversion target.

However, while taking the industry average figures as your benchmark, do that with caution.

Why?

Because the “average” may mean nothing to you when the samples are highly diverse. 

Unfortunately, conversion rates of each business ARE greatly varied, as your business is unique; your traffic source may be highly different from others…and so on.

Have a look at the table below by MarketingSherpa. It has detailed data on conversion rates by percentile within each industry.

Conversion Rate Industry Standards 2

When you look at this dataset, you may marvel at the possibility of conversion rates as high as 70%, while some others in the same business segment register less than 1/20 of that result.

Indeed that massive gap may point to some eCommerce stores struggling financially owning to the poor performance in conversion rate. But the gap also provides an indication of how vastly different conversion rates could be within the same industry.

Have a look at Home and Garden. While the industry “norm” is at 15%, the 10th percentile converts at .5% and the 90th percentile converts at 63.6%!

So which benchmark should you use now?

We believe, at the end of the day, your conversion rate from the last time you checked it is the essential benchmark for your business. Is your conversion rate today better than it was last month? If it is, then you’re heading somewhere.

How To Improve Conversion Rates

There are many persuasion hacks and CRO best practices to improve conversion rates. Though I hate to disappoint you, these tactics can only go so far. And some might be even counterproductive.

But what works all the time are:

Know your customers.

Don’t limit yourself to demographics and that customer profile filed in a business folder somewhere.

You need to get personal with your customer—know exactly what brought him to your site; find out what led him to your offer.
This way, you don’t optimize your pages based on best practices from another company’s CRO test. Instead, you tailor them to the person who visits your site.

In return, your customers should feel you’re talking to him alone. And that you’re selling the right product that he’s looking for.

And when you truly understand his emotions and target that with your offer, that’s how you get conversions up.

Such an easy concept, so vital in online selling, and yet I see a lot of eCommerce stores fall short on this every time.

So before you optimize your pages, know the “why” of your consumers. Once you get to the bottom of those, conducting CRO tests becomes easier.

Once you deepen your understanding of the customer motivation, it is time to tweak your pages.

Improve User Experience (U/X)

Ready to get a hundred and one tips on how to improve user experience? I’ll spare you that. Instead, let me open your mind and show you what UX really is beyond the buzzword.

The magic word is EASY.

It means building a webpage that makes it easy for an average person to navigate and understand.

Here’s the thing: human brains generally like to chill. When a person lands on your page, he expects a smooth ride from beginning to end.

The simple psychology tells us that your customer would not want to think about things like:

  • Where do I find this product on this site?
  • Will this product solve my problem?
  • Will this be the right fit?
  • Is this any good?
  • If I click this link, where will it take me?
  • Can I trust this site with my personal information?

All answers to these questions should already be intuitive on your page. So that when a person lands on it, these questions never ever have to enter his/her mind.

Every question builds the hesitation. Every question creates more anxiety. And that’s what stops converting.

Start with the following practical steps to make it easy for your user:

  • Make your pages scannable
  • Each page should ideally only have one goal
  • Improve site speed

Know your site visitors’ behavior with heatmaps

Heat-map is an essential tool for you to get to know your website’s visitors and their behavior on your product page—not just what they say, but what they actually do.

It’s like a quick tool to hack into your visitor’s mind, by showing where visitors spend most of their time based on eye-tracking, scrolling and clicking behaviors.

Upon obtaining such insights, you would know where to improve and how to optimize your efforts.

Hotjar, Optimizely, or heatmap—just pick one and do it.

Conduct A/B tests

This is where most people cower and forego CRO tests.

But CRO testing doesn’t have to be this esoteric mathematical exercise to be scared of.

There are now many programs that make A/B testing a breeze. We use VWO at Convertica. But there are many other options at different price ranges such as:

  1. Optimizely
  2. Omniconvert
  3. Freshworks

Also, most modern shopping platforms like Shopify and BigCommerce already have it built-in making it easier than ever to conduct A/B tests.

So there is no reason for you not to do it. It will greatly help you understand your customers. And gives you a scientific testing process which is the heart of all CRO tests.

Key Takeaways

The most important takeaway is that optimizing your e-commerce conversion rate is one of the biggest impact actions you can take to make your store more profitable. If you haven’t invested in this area of store-building, you should seriously consider starting now.

You can start with small optimizations at first, and always test rigorously to be sure you are making the right optimizations.

With proper testing, such as A/B testing in place, your optimization process should result in a higher conversion rate which brings benefits such as lower customer acquisition costs. Your profitability and growth potential will increase, all thanks to a higher e-commerce conversion rate.

Convertica

This article was written together with our friends at Convertica – the done-for-you conversion rate optimization specialists that maximize your revenue from the same search engine rankings or paid advertising campaigns.

Get The ABEL Finance Insight Program

For e-commerce entrepreneurs who want to make the best decisions for growing their stores, ABEL Finance is the Virtual CFO you need. ABEL Finance’s Insight Program helps you understand where you are financially and where you should be going. We will guide you through the steps to get where you would like to be. Think of it this way, some of the world’s best financial insights for e-commerce, right on your side so you can grow without limitations. Schedule a call here to learn about our Finance Insight program at your convenience.

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