Saturday, September 22, 2012

Re-assessing the value of conversion rates


Whilst the e-commerce industry as a whole continues to grow at 20% per year, life for individual site owners doesn’t get any easier.

Whilst now levelling out, CPCs have seen heady growth over previous years, meaning that it’s more important than ever to secure a sale once you’ve enticed a user to your site.
However, at the same time there is a clear trend showing a decline in on-site conversion rates, meaning that more and more of your expensively-won traffic is simply visiting the site only to leave without purchasing.
As a data analytics provider we’re often asked what the drivers are behind this fall in conversions. At a simple level there are probably a few key reasons.
The most obvious is the rise in understanding of your average online shopper. People are more comfortable shopping around so are likely to visit more sites before finally making a purchase.
A more macro explanation may lie in the economy. In a recession people are more price sensitive so are more likely to research purchases more carefully, again leading to multiple site visits without a purchase.
Further drivers of variations in conversion rates might even be external to issues of consumer choice. For example, we recently undertook some analysis of conversion rate by browser type and saw some significant variations.
We found that
  • Microsoft IE users had a conversion rate of 3.5%
  • The average rate for Google Chrome users was 2.0%
  • Apple's Safari and Mozilla's Firefox users sit in the middle at 2.4%.
All of these factors put together explain a decrease in conversion rates per visit, but they also point towards a weakness in the measurement itself.

Greater purchase research, whether driven by increased understanding or recessionary behaviour, will by definition lower your per visit conversion rate as each user is likely to make more visits before making their final purchase decision.
Moreover, if your per visit conversion rate (VCR) is going to be affected by external factors such as browser type then the measure becomes even more muddled.
It’s perhaps time to move away from the simple VCR measurement towards a metric that takes into account changing consumer behaviour. The measure we tend to promote is visitor conversion rate (rather clunkily acronymed as VorCR) – that is the conversion rate per unique user, rather than per visit.
This overlooks the number of times a person visits before converting, which is after all a negligible additional cost of sale, and instead measures your retail performance on a human level.
According to our analysis the average visit conversion rate is 2.7% but your visitor conversion rate is 7.5% which means that average 92.5% of visitors are not converting on your website, not 97.3%.
Any site owner would appreciate an overnight 167% leap in conversions and all it takes is a slight change of perspective!
More importantly, we believe that VorCR gives site owners a much clearer view of how their site is performing in the real world, excluding macro behavioural factors.
The sooner businesses move away from average metrics like visits and start looking at the individual the sooner businesses will be more equipped to understand how changes both intrinsically and extrinsically are impacting their success online.

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