Conversion Rate: What It Is, How to Calculate It, and What Counts As a Good Rate

Conversion rate is a metric that shows the percentage of customers who complete a desired action. This action could be purchasing a product, registering on a website, downloading content, or any other activity that holds value for the business.

You can use calculators to calculate the percentage. Source: upwork

Below, we’ll take a closer look at what CR is, how to calculate conversion, and why this metric is important.

What is conversion and how to calculate it

Conversion means that a user moves from one stage to another, such as from showing interest to subscribing.

Example: Out of 1,000 people who saw an ad for your app, 50 downloaded it. The CR for the marketing campaign would be 5%.

Sales conversion is the final stage of the funnel. The person becomes interested and makes a purchase (or subscribes to a paid service). Other steps leading to the final stage are also important, so tracking their CR makes sense.

Here’s why the conversion rate is used:

It serves as a success metric for marketers. It helps them understand how effective their ads are at attracting users and driving desired actions. If CR is low, specialists investigate the reasons and make adjustments to the campaign to improve results.
Developers and designers use the conversion rate to enhance websites and interfaces. They analyze which elements (buttons, forms, layout) encourage users to take action and which don’t. For example, CR provides insight into which page layout leads to more completed forms.

There are various approaches to calculating CR: the overall rate for the entire business, or analysis by specific stages, sales channels, products, and managers.

Funnel stage analysis:

This helps identify weak points and optimize the stages where the greatest drop in conversion is observed.

Channel analysis:

This approach determines the most effective sales channels and reallocates budgets accordingly, maximizing return on investment.

Product analysis:

This helps highlight bestsellers and focus efforts on promoting the most profitable products or services.

Manager analysis:

It evaluates the performance of each employee and identifies specialists who may need additional training.

So, how do you calculate conversion rate?

You only need two metrics to calculate it:

The number of users who completed a target action (purchase, registration, subscription, etc.).
The total number of visitors or users (who visited the site, viewed the page, interacted with an ad).

Here’s the conversion rate formula:

CR formula

For example, if 1,000 people visited your site and 10 of them made a purchase, the conversion rate would be CR = (10 / 1,000) × 100% = 1%.

How do you calculate conversion rate for a specific channel?

To do this, determine the number of people who interacted with the channel. For example, in online stores, these are the users who submitted a request. In physical stores, these are the visitors (tracked by sensors at the entrance). In phone sales, these are the people who called and expressed interest in making a purchase (their data is recorded by managers).

Additionally, UTM tags help with conversion calculations. Read more in the article UTM Codes: What They Are and How to Create Them to understand how they work.

Why is conversion rate important?

Conversion rate is like an X-ray for your business. With this metric, you can see how smoothly all internal processes are working.

The more efficient the sales funnel, the higher the conversion rate and, consequently, the higher the profit. Imagine: previously, 7 out of 20 inquiries led to sales, but now that number has increased to 12 — clearly, the business is doing well.

In addition, conversion rate analysis does the following:

Identifies sales bottlenecks. Customers show interest but don’t make a purchase. By tracking conversion at different stages of the funnel, you can determine where the process breaks down—perhaps they left a request but didn’t receive a call back from the manager or encountered issues with payment.
Shows which channel generates more revenue. Imagine a clothing store wants to figure out whether email marketing or influencer partnerships are more effective. Conversion rate analysis can help. The higher the percentage of people who click on a link in an email or blog post and make a purchase, the more effective that channel is.
Evaluates the success of updates. Let’s say a brand decides to update the design of its homepage. The new version looks more modern, but it’s unclear whether customers will like it. How do you know if the new design is beneficial? You can track the conversion rate from website visits to purchases. First, record the number of sales over a set period with the current design. Then, change the homepage and record the number of conversions over the same period. If the number of purchases increases, the update has proven effective.

It’s important to note that conversion rates vary depending on whether you are dealing with cold or warm leads. Cold leads are those who are just getting acquainted with your brand, so the conversion rate in this group is typically lower. Warm leads, who are already familiar with your product or service, are more likely to make a purchase, resulting in a higher conversion rate.

What to do with conversion rate values?

There is no definitive "good" conversion rate as it depends on the specifics of the business. In e-commerce, a website conversion rate of one percent is considered decent, while for seasonal products, it can reach ten percent.

However, it's not advisable to rely solely on these figures. To set target conversion rates, historical data covering a specific period (e.g., a year) is necessary. For newer companies, conversion rates are often estimated through trial and error, or by using the average rate for similar businesses as a reference.

Based on historical data, profitability from promotions with a given conversion rate is assessed using the formula for calculating ROMI:

(Revenue from promotion - Promotion costs) / Promotion costs * 100

Example:

A fitness center invested $2,000 in targeted social media ads in August. The ads brought 1,200 visitors to the site, 30 of whom purchased memberships, totaling $6,000 in revenue.

Let’s calculate the conversion rate:

30 / 1200 * 100 = 2.5%.

Now let’s analyze the return on marketing investment (ROMI):

(6,000 - 2,000) / 2,000 * 100 = 200%.

In this case, the ROMI is 200%, indicating a highly effective promotion.

What affects conversion rate?

Let's explore why conversion rates sometimes increase and sometimes decrease.

Factors you cannot control

Seasonality. You can’t expect high sales of skiing equipment in the summer.
Weather. On a hot day, demand for ice cream and cold drinks will rise, while on a cold day, warm blankets will be in higher demand.
Problems people face. For instance, there will be a surge in demand for generators and candles during power outages.

Factors you can control

Quality traffic. There’s no point in attracting a huge number of customers who aren’t interested in your product.
Proper targeting settings. If you enter the wrong data (e.g., gender), your fishing rod ads might end up being seen by teenage girls.
Appropriate keywords. Skillful use of relevant keywords in the text helps increase conversion. The key is to ensure the keywords are seamlessly integrated into the content. Avoid clunky phrases like “buy fishing rod London.”
Where you advertise. To improve website conversion and optimize your advertising budget, it’s important to determine which social networks are most popular among your target audience.
Clear interface. Don’t make users dig through a maze of options. Simplify the interface so everything is easy to find. Also, keep the form short—no need for an excessive number of fields.
Relevance of creatives. Ads (both images and text) require constant testing because their effectiveness changes over time. The goal is to find the best options to boost conversion.
Website loading speed. Users who wait too long for a page to load often close the site without making a purchase.
Good mobile optimization. The mobile version of your site must be user-friendly and functional so that users can easily find the information they need. Otherwise, it will negatively affect the conversion rate.
Product knowledge among sales managers. Train them. Don’t leave your employees to handle clients on their own. Provide them with all the tools for successful sales — offer a solid script and teach them everything they need to know about the product or service.

I have a low conversion rate, what should I do?

Let’s explore how to improve conversion rates. Here are a few methods:

Make your website user-friendly. Improving usability is key to increasing conversion rates. Create an attractive, easy-to-navigate interface. Pay attention to page design, navigation, and loading speed. Important information and CTAs (calls-to-action) should be easily accessible.

Simplify the purchase process. Forms shouldn’t be too long or complicated. The fewer steps users have to take, the better. If possible, allow for one-click purchases. The fewer opportunities a customer has to think, “Do I really need a fishing rod that costs $28,000?” the better.

Create appealing content. Offer visitors what they need, using catchy headlines and clear product descriptions with benefits. Clearly and simply explain the value of your offer and convince people to choose you.

Use social proof. Positive reviews and showing that others are choosing your product builds trust. Include reviews, ratings, and recommendations on your website and in your ads. This will demonstrate the quality of your products or services and positively impact conversion.

What is social proof? Read the article What Is Social Proof and How Does It Work? to learn how to use it in marketing.

Test and analyze. Use A/B tests to compare different designs for your website, ads, emails, etc. Choose the best elements that increase conversion. Study the data and track results.

Conclusion

CR (Conversion Rate) is one of the most important metrics for business performance. It shows what percentage of visitors perform the desired action, whether it’s making a purchase, registering, or subscribing. Increasing the conversion rate requires a comprehensive approach. It’s crucial to attract high-quality traffic, ensuring that users visiting your site are genuinely interested in your product or service.

Precise setup of advertising campaigns also plays a major role. Incorrectly set parameters result in people visiting your site who are not interested in your offer. Proper SEO usage makes your site more visible in search engines, which attracts more targeted visitors.

Optimizing these factors boosts the conversion rate, ultimately leading to increased profits.