The world we live in is increasingly data-driven. Companies are increasingly leveraging data to better understand their performance and find areas where they can improve in their efficiency. With many powerful analytical tools available, this aspect of business can often determine the difference between success and failure.
When discussing the many metrics that are used to enhance knowledge about professional performance, one term that you have likely heard of is conversion rate. But what is the conversion rate and how do you calculate it? Let’s discuss these topics in this article.
What is the Conversion Rate?
Before beginning to look into how to calculate the conversion rate, it is first important to understand what is meant by the term. Fortunately, the conversion rate is a very simple concept to understand even though it can vary a bit in how it is applied. In the broadest sense, conversion rate refers to the number of conversions per visitor and is expressed as a percentage.
Conversions are essentially a one size fits all term for an ideal outcome. This outcome will vary depending on what is being discussed. A conversion can be making a purchase, signing up for an e-mail list, downloading something, or upgrading a service. The definition of a conversion depends on what an organization’s goal is. Thus, what a conversion is will change depending upon the situation; however, the most common use of the term involves a customer making a purchase or clicking on an advertisement.
Since conversion is the outcome that an organization wants to see from a customer, a high conversion rate means that the organization is more successful. Thus, lots of discussion about this metric involves how to increase conversion rates.
How to Calculate Conversion Rate
Now that we’re all on the same page in terms of the definition of conversion rate, let’s take a look at how to calculate it. The formula is relatively easy to understand:
(Conversions / Visitors) * 100%
To calculate the conversion rate, two pieces of data must be known: the number of conversions and the number of visitors. Remember that you define the conversion whether it clicks on an advertisement or a purchase made in a store. This will also define the visitors. If your conversion is purchased in a store, visitors will be anyone that walks in the store during the time being measured. If it is clicked on a Facebook Ad, visitors will be all people who were shown the Facebook ad.
Let’s look at some examples. First, let’s look at an example of how to calculate conversion rate in retail. Let’s say you run a small boutique that wants to see a conversion rate of purchase on each day of the week. For a week, the total number of people that enter the store is counted each day. If there were 200 visitors on Monday and 250 visitors on Tuesday and the total number of sales were 80 on Monday and 85 on Tuesday, then the conversion rates would be 40% on Monday (80/200 * 100%) and 34% on Tuesday (85/250 * 100%). While more sales were made on Tuesday, Monday was more efficient.
Now, let’s look at an example of how to calculate the e-commerce conversion rate. Let’s say you launch an ad campaign on Facebook and want to see how successful it was. The ad ends up being shown to a total of 60,000 people. These are the “visitors.” Of these, a total of 1,500 clicks on it. The conversion rate would be 2.5% (1,500/60,000 * 100%). This is a low conversion rate that could likely be improved by adjusting the timing of ads to better target your ideal audience.
As can be seen, examining conversion rates can provide data towards where performance is best and where there is potential for improvements. This is why it is important to understand how to calculate a conversion rate.
How to Calculate Conversion Rate in Excel
Many powerful marketing tools will provide conversion rates for you. For example, things like Google Analytics and Facebook Analytics show conversion rates along with a wealth of other metrics. However, if you are running data for a physical store or are looking at other things such as a direct E-mail campaign or data from website sales, you may find yourself needing to calculate the sales conversion rate on your own.
One of the most useful tools for doing this is Excel. First, in some cases, the variables needed can be easily imported into Excel. However, in all cases, Excel’s formulas can be easily used to quickly calculate data. If you only need to calculate the conversion rate for a few things, doing it by hand is easy. But if you are calculating it for dozens of metrics, clicking and dragging in Excel will save a ton of time.
The first step is to organize your data. Typically, if you are importing data, you’ll have one column with conversions for each period and another column for visitors or potential conversions for each period. Let’s assume that this is the case and that your data starts in the first row with the first conversion value in A1 and the first visitor value in B1.
Next, go to column C, just to the right of your data. In cell C1, type “=A1/B1” and hit Enter. It will calculate the conversion rate in decimal form. Next, put your cursor on the bottom right corner of cell C1. It will change to a thin, black plus sign. Double click (or click and drag) and the formula will be applied to all other cells in column C.
Finally, to change from the decimal form to percentage, highlight all cells with conversion rates and change the number type to “Percentage.” You’ll find this option on the “Home” tab. This is how to calculate conversion rate in Excel.
With data becoming increasingly important for driving business decisions, it is important to utilize metrics. Conversion rates illustrate the percentage of target outcomes that were achieved out of possible total outcomes. It is very easy to learn how to calculate a conversion rate by simply dividing conversions by visitors and multiplying the result by one hundred percent. Calculating this metric will help you better understand business performance in a wide array of areas.