Avoid Ratios For Metrics – Moving Beyond Conversion Rates, Part 1

Jared Spool

May 18th, 2012

You can read this in Italian thanks to Marco Dini.

Moving Beyond Conversion Rates:

Part 1: Avoid Ratios for Metrics (this)
Part 2: Not All Visitors Make Great Customers
Part 3: Visitors Are Not All The Same
Part 4: Campaigns Are Where Conversion Rates Shine
Part 5: Measuring Money Left On The Table


You can read this in Italian thanks to Marco Dini.

Recently, I posted a tweet about conversion rates.

Immediately, I received several responses, all of them showing the common misunderstandings that people have about conversion rates.

The conversion rate has become a standard metric for many online businesses. I’ve seen clients watch it every day, looking at the variations they see and asking questions about why it changes (or doesn’t).

Unfortunately, conversion rate is probably one of the most dangerous and mis-used metrics available to site designers to measure how good their site is. They apply it as if it is telling them something and, worse, when they optimize for it, they can create a site that looks like crap and produces undesirable customers.

This is the first post in a series on using conversion rates, hopefully to clear up the common misunderstandings and help designers find better ways to measure their site’s success. In this episode, we’ll look at the basic nature of what a conversion rate is and why it’s such a crappy metric.

Avoid Ratios For Metrics

Conversion rate is a ratio. It’s the number of people who purchase (or sign up or whatever your “call to action” button does) divided by the number of visitors to the site or page. If you have a 15,000 people buy products out of the 1,000,000 people who visited your site, you’ll have a conversion rate of 1.5%.

Ratios are a problem because either the numerator (people who buy) or the denominator (people who visit) can change. Let’s say you still have 15,000 purchasers, but because of a “successful” marketing push, you end up bringing 2,000,000 visitors to the site. Now, you made the same amount of money from those 15,000 purchasers. But your conversion rate dropped to 0.75%.

Because it’s a ratio, you don’t have control over which side changes. The theory is that it should be uniform, but as we’ll see in other posts in this series, that rarely happens.

This means conversion rates often fluctuate for no discernible reason. It can be 1.5% one day, 0.75% the next, and 3.0% the next. This would just be a normal variation based on what’s happening with the visitors being attracted to the site. And this normal variation makes it hard to tell when something is broken or out of whack.

For any e-commerce site, I have the perfect advice on how to raise their conversion rate significantly. All they have to do is stop marketing. Once they stop marketing, the number of visitors will drop to only those who are already loyal customers.

Because those visitors are loyal, they are probably only coming to buy something. The ratio of purchasers to visitors will skyrocket. Sales will likely drop, but conversion will go sky-high.

Sounds great, right? That’s the other problem with the conversion rate ratio: it’s not at all related to the other business operations.

I have a little game I like to play with executives. I’ll put two doors on the screen. I’ll tell the execs that they can choose one door. Behind the first door is an increased conversion rate, but no increase in sales (in fact, a likely decrease). Behind the second door is a decreased conversion rate, but an increase in sales. Which would they like?

Every executive I’ve ever talked to has asked for the increased sales. My next question is then: Why focus on conversion rate then? That’s when I get that deer-in-headlights look, followed by a reduced focus on the conversion rate metric.

In the next installment, we’ll look at why not every visitor is someone you want as a customer.


Moving Beyond Conversion Rates:

Part 1: Avoid Ratios for Metrics (this)
Part 2: Not All Visitors Make Great Customers
Part 3: Visitors Are Not All The Same
Part 4: Campaigns Are Where Conversion Rates Shine
Part 5: Measuring Money Left On The Table

Add a Comment