In today’s data-driven landscape, mastering key metrics is vital for any successful business. And out of the countless number of metrics out there, the sales conversion rate is one of the most important metrics that e-commerce businesses should master.
So what is the sales conversion rate and what does it measure? Sales conversion rate is the percentage of leads or visitors that are taking a desired action. This could include making a purchase or signing up for a free trial. Simply put, it measures how effective your marketing efforts are. The basic formula for this is:
This gives you a percentage value to gauge your sales and marketing efforts.
Why You Should Care
Now you know what sales conversion rate is, why is it so important?
- It allows you to evaluate the effectiveness of marketing efforts at every stage of the sales funnel.
- A higher sales conversion rate directly correlates with higher growth, higher sales, and hence higher revenues.
This means that the sales conversion rate gives you the insight to make small targeted changes that can result in drastic improvements in conversion or sales. It also means if you manage to double your sales conversion rate, given all other things remain equal, you are selling double the amount of products with the same amount of marketing effort, or double the ROI on your marketing spend. And that is why the sales conversion rate is a key metric for e-commerce businesses to pay attention to.
How to Interpret Your Numbers
So what is a good sales conversion rate? Unfortunately, there isn’t a simple cutoff differentiating a good rate from a bad rate. It really depends on what industry you’re in, and where you’re pulling the data from. For example, while the luxury goods industry has lower sales conversion rates, they also sell their products at higher prices, which often balances out to similar levels of revenue compared to industries with higher sales conversion rates. Hence, while you can't determine whether your sales conversion rate is good or bad just by looking at it, if yours is significantly lower than the industry average, it is probably time to figure out what’s going wrong.
Industry Benchmarks
Let’s take a look at some breakdowns of the sales conversion rate by industry. This will help you determine whether you’re doing a good job at turning traffic into paying customers.
Here’s an image highlighting the sales conversion rate of major industries (Source: Salesforce Research, November 14, 2023). As you can see, simply looking at your raw numbers doesn’t yield much insight due to the huge spread of conversion rates across different industries. Instead, compare your sales conversion rate against the benchmark rates of your industry to get an idea of how effective your marketing and sales efforts are.
What To Do If You Are Underperforming
Now that you know what the sales conversion rate is and what constitutes a good sales conversion rate, what should you do if you’re underperforming relative to your industry averages? This is where conversion rate optimization (CRO) comes in. We have a detailed blog article discussing the specifics of CRO here, but here’s a TL;DR. CRO is a method to improve your sales conversion rate through repeated testing and comparing various marketing strategies. Notable methods include A/B testing and multivariate testing. Once you have identified specific bottlenecks in the customer decision journey by analyzing the sales conversion rate at every stage of the sales funnel, you can apply CRO to optimize and solve these bottlenecks.
Case Study
If you’re still unsure on what to do, let’s take a quick look at a case study of how Walmart.ca skyrocketed its order figures by utilizing the sales conversion rate. Although walmart.ca was enjoying high traffic and sales on its online store, it realized its sales conversion rates were astoundingly low on mobile and tablet devices specifically. The mobile site was poorly optimized with slow responsiveness and an incompatible layout, putting off visitors from making purchases. To tackle this, walmart.ca turned to CRO and through A/B testing, revamped the site for mobile devices. Simple fixes to increase responsiveness and a redesigned layout resulted in a 20% increase in sales conversion rate, corresponding to a 98% increase in orders. Walmart.ca was able to enjoy this drastic improvement in sales with relatively little effort thanks to their understanding of the sales conversion rate metric, and their ability to use CRO effectively. If you want to read more about their strategy, click the link here. The learnings from this case apply to any e-commerce business and highlight the importance of mastering the sales conversion rate metric.
Mastering the Sales Conversion Rate Metric
While the formula and concept behind sales conversion rate seems relatively straightforward, being able to master and utilize it effectively is an entirely different matter. Sure, some e-commerce platforms such as Amazon or Shopify include the sales conversion rate as a part of your metrics dashboard, but they often base their calculations off surface level statistics like number of products sold and number of sessions on your page. As a result, they fail to show specific conversion rates at different stages of the sales funnel, or take into account external influences such as word-of-mouth advertising. These are all important elements when trying to implement CRO.
Given this, bigger brands who take their data more seriously often pull all their data into a data warehouse, where dedicated analysts sift through the data to calculate a detailed sales conversion rate. And while this gives you deep insight over your data which allows you to implement CRO effectively, it takes a lot of time and capital to set up.
This is where Cotera comes in. Cotera combines the best of both worlds – it is easy and fast to set up while giving you the level of flexibility and power you find in an in-house solution. You can even notify your team when there’s any changes to your sales conversion rate!