Conversions aren't just about new sales or subscribers versus your website visitors.

First, let's review the conversion rate definition from Defining Online Conversion: What Is It?:

The conversion rate is a % of unique actions that result from unique exposures.

The conversion rate metric can be used to measure anything you want to track, analyze and optimize, and is by no means linked only to sales or subscribers and your website.

Here are just some quick examples of conversion rates not used as often as the standard sales/visitors CR:

• sales / e-mail clicks
• sales / e-mails delivered
• order finished / add to cart
• sales / ad impressions
• phone calls / website visits
• product recommendations / product views
• etc.

There are countless combinations available, depending on what specifically you want to measure and optimize.

Let's return to our conversion rate definition for a second:

The conversion rate is a % of unique actions that result from unique exposures.

As you can see from the definition, the conversion rate is a combination of actions and exposures, with a simple formula of:

conversion rate = actions / exposures

Consequently, conversion rate optimization begins first with defining what you want to measure and optimize, and then by defining the action and exposure elements that help you get to the numbers you need.

Let's presume you want to measure the overall effectiveness of your e-mail e-zine in driving sales.

1. The overall effectiveness of your e-mail e-zine can be measured as a conversion between the number of unique e-mail messages delivered [exposures] to your list and the number of unique sales generated [actions] from the e-mailing. [CR = unique sales / unique delivered e-mail messages]
   
   
2. However, this will only give you the overall effectiveness and a trend to watch over a longer period of time, telling you whether you are increasing or decreasing your overall effectiveness. It does not tell you what you need to optimize to increase your sales.
   To determine this, consider the steps needed to make the sale via the e-mail campaign.
   
   
3. It starts with getting the click from the e-mail message delivered to your website. Increasing the number of clicks requires increasing the attractiveness of the Calls-to-Action [CTAs] in the e-mail message.
   Hence you need to know how effective the CTAs are in driving recipients from the e-mail to the website, by measuring the conversion between the number of unique e-mail messages delivered [exposures] and unique clicks [actions] to your website [CR = unique clicks / unique delivered e-mail messages].
   This will of course only give you the basic information --- getting more will require measuring each individual CTA.
   
   
4. A click of course does not mean sales, so the next step is measuring the conversion from the e-mail clicks [exposures] to purchases [actions] --> [CR = unique purchases / unique e-mail clicks]. This will help you optimize the actual landing pages to which you lead the subscribers to your e-mail list, using your e-zine.
   
   
5. And finally, to fully optimize your process you may want to measure the conversion on the sales process level to help you optimize each step that leads to the purchase after the click, such as how good the product landing pages are in getting clickers to add the product to the shopping cart [CR = unique add to carts / unique e-mail clicks].

Much like everything else in series so far, this is just a simplistic demonstration, here primarily for the purpose of helping you see how to combine action and exposure elements.

In the case of e-zine optimization for sales, you would also need to measure relevant clicks (since only relevant clicks will increase your sales), different CTAs, open rates and so on.

The point is, combine different actions and exposures to come up with conversion rate formulas that will impact your bottom line.

On the other hand, the conversion doesn't really need to happen online, but it could happen in a physical retail store, over the phone or even using a mobile phone.

Consequently, measuring and optimizing conversion for multi-channel merchants, as well as for B2B marketers, where conversion is most often achieved in a live meeting, is a complex issue.

What Initializes Conversion?

Why do we even care which channel initiated the conversion?

• Optimizing for the Source Consumer
  Different sources of conversion always generate different results. A TV customer will convert at a different rate than a catalog customer, and an SEM customer will convert at a different rate than a print customer. The point is, each source of traffic delivers a different type of prospect. Being able to tailor the on-site experience to these different types of customers impacts our sales success.
  
  
• Optimizing the Source
  By measuring the conversion, and naturally sales, per source of conversion we are able to directly attribute revenues to that source. That allows us to optimize both the source (advertising) and the conversion touch-point (website). It allows us to evaluate each source, decide whether that source is performing according to our standards, and in the end helps us optimize our ad spend by channel.

So far so good. But it gets even more complex.

Imagine this scenario:

• TV advertising generated demand for our product.
• But instead of going to our website, the consumer goes to Google and does a search for a phrase he remembers from the TV ad.
• Google delivers him to our website, where he does not make a purchase, but rather subscribes to our e-mail e-zine.
• Our new subscriber then receives 5 more e-mail e-zine issues, before deciding to make a purchase.
• But instead of coming directly to our website from the e-zine issue to make the purchase, he again uses Google to visit the website.
• He finally ads the product to his shopping cart, but then changes his mind.
• Because we already have his e-mail address and have identified an abandoned shopping cart, we initiate an abandoned shopping cart e-mail program.
• After 3 follow-up e-mail messages from the abandoned shopping cart e-mail program, the consumer finally completes his purchase and converts.

Or in graphic terms ...

This isn't a sci-fi scenario, but rather a reality we're seeing in our webstores every day.

For example, in my own experience I'm finding that in our case e-mail e-zines don't convert the majority of subscribers directly, but rather facilitate the conversion indirectly. Subscribers receive the e-zine, which builds their trust, builds demand and gets them ready for the purchase. But when making the purchase, that same subscriber still enters the website through a Search Engine.

While looking at the conversion from this complex viewpoint does present difficulties, it simply needs to be done.

Just take a look at the number of steps outlined above. Each of these steps represents an optimization opportunity, enabling you to further increase sales. And every step also represents a threat that decreases conversion.

But in addition to the question of how to measure this process, the next logical problem is how you actually attribute conversion to the appropriate channel. It is clear in this scenario that TV started the process. So while each of the following steps assisted in achieving the conversion, the TV advertising needs to be attributed for starting the sales process.

The problem here is that the above scenario is really a simple one. In a multi-channel environment, the paths are much more complicated and can shift from channel to channel, including offline channels, before the purchase is concluded.

Also in many cases it will be difficult to establish the initial channel that started the sales process. If for example you're conducting a full-scale offline campaign through TV, print, outdoor and radio, all at the same time, all of these media will generate online search, consequently making it impossible to determine from which media exactly the prospect came.

Furthermore, we must not forget that an offline media cannot be taken out of the equation once the sales process has already started. Even while the consumer is receiving our e-mail campaigns, he may be exposed to our offline advertising, further facilitating the purchase decision.

Where Conversion is Achieved?

As if measuring the impact of various sources of traffic and conversion were not enough of a challenge, we also need to take into account that the conversion can be completed using an offline channel.

• Many website visitors will make the purchase through your call center, using the phone number on your website.
• Multi-channel merchants with their own retail stores or even with retail partners will often see the conversion happening in the physical store.
• A website visitor may order a print catalog from your website, and then make the purchase using the phone number in the catalog ... or go back to the website and make the purchase there.
• In B2B, online will often generate the lead, which will then be processed in-person by live sales reps.

Unfortunately we can never expect to be able to measure the multi-channel environment with 100% precision, but we certainly can get close enough.

What we have to understand though is that measuring multi-channel conversion is not a one-time deal, but rather a long-term process that will slowly enable you to increase measurement precision.

We will return to these issues in more detail in many of the future posts on this blog.

The topic was teleshopping in Central and Eastern Europe, the revolution that is taking place in teleshopping and multi-channel integration. Really one of my favorites.

Here are the key points ...

1. Integrate

With the media evolution that is taking place, our view and expectations of teleshopping must change as well.

Without doubt, TV is still the strongest mass advertising channel, and in many cases, especially in Direct Response Television [DRTV], also the least expensive one when it comes to generating direct sales.

However, while our direct response TV advertising still needs to sell directly at a profitable Cost-per-Order [CPO], its key power can no longer be found primarily in direct sales, but rather in being the key demand driver and the key "lead generation" channel, while the sale may happen somewhere entirely else.

Consequently, it is becoming increasingly important to fully integrate our teleshopping activities with internet marketing, direct mail, retail sales, wholesale sales, print, mobile and of course telemarketing.

These channels not only capture the demand generated by direct response TV advertising, but also enable you to

(a) increase your customer conversion through complex follow-up activities,

(b) increase purchase frequency and

(c) grow your reach through various viral components.

Furthermore, integrating additional channels into your mix delivers new audiences, extends the life-cycle of your products and enables you to sell products with a longer purchase cycle.

If however you do not have these channels in place and fully optimized to capture the demand and convert it into sales, you are not only losing money, but are instead driving money towards your competitors.

Essentially, direct response TV advertising is still at the center of the marketing mix, but needs to be integrated with a full spectrum of other channels that enable it to fully achieve its sales potential.

2. Brand

Brand and direct usuall don't seem to go together hand in hand. The brand creative people don't have much love for the DM crowd, and the same goes in the other direction as well.

But, brand is crucial for direct marketing.

(a) Positive brand perception and recognition drive conversions up.

(b) Brand increases customer loyalty and satisfaction.

(c) Brand extends the product life-cycle, enabling you to spend less in the long-term to sustain or grow your sales.

The good part is that direct response TV advertising builds the brand ... as long as you are willing to suffer through higher CPOs at the beginning and then watch them decrease gradually through ever-increasing sales through all of your channels.

It goes without saying of course that the advertising creative folk should remember that adding direct response elements to brand advertising will always increase sales:) But that's a story for a different time ...

Anyway, brand is becoming a key issue for direct marketers.

The problem is, and most of the creative folks won't admit this either, that brands are no longer created through visual impressions, but rather through experienced impressions.

And building brands today goes in both directions. The marketer might start with the brand building, but the consumers are the ones that are going to actually build the brand online and through word of mouth ... good or bad. Essentially, branding is becoming alot more Public Relations than anyone would like to admit ... except of course the PR people, who've known this all along.

The simple solution?

Well, there are no longer any simple solutions. The right solution is to fully integrate brand, direct and PR.

3. Test Everything

This one is easy. Test everything, then go back and test everything again. And again.

There are literally hundreds of elements for you to test. But here's a quick one for US DRTV marketers --> stop relying only on your product-focused mini sites but rather consider testing "the good old webstore" model, with dozens or hundreds or thousands of products ... with smart merchandising of course.

Doing so will drive your short-term sales conversion rates down, but it will drive your long-term sales conversion rates and profitability up. Remember, even with DRTV the game is no longer about making the first sale, but about making a series of consequtive sales to the same consumer. Even if he doesn't buy the exposed DRTV product ...

4. Go Viral

The internet provides unprecedented viral marketing opportunities, especially for direct response TV marketers. And smart viral campaigns will enable you to generate leads for less than 10 Dollar Cents per lead ...

5. Social Media Is Here

... and it's not going anywhere.

For direct response TV marketers, social media is both an opportunity and a threat.

(a) Everyone has a voice ... and they’re not affraid to use it online. Got a faulty product or long delivery times? They'll find you, expose you, talk about you and demolish your brand.

(b) Price comparison is easy and quick. Consequently, your pricing strategies have never been more important.

(c) Dozens of competitors are just an “online search away", and often Google loves them better than you ... even for your own product keywords.

(d) Watch the likes of eBay and other online auctions --> it's never been easier for a small-time entrepreneur to compete with the big advertiser, actually piggy-backing on his ad spend.

6. Diversify

Capture the product long tail by both expanding your product mix and repackaging your product combinations to cater to different target audiences.

Nothing new, right?

But how many are actually doing it?

A conversion can happen instantly or over a longer period of time. If you're measuring your purchase/visitor conversion rate, the purchase might happen on the first visit, after a few visits or even months after someone has visited your website, subscribed to your e-zine and received weekly communications from you.

I usually define the time component as

• immediate conversion (1st visit),
• short-term conversion (2-5 visits),
• middle-term conversion (first subscribes to e-zine and purchases within a month) and
• long-term conversion (purchases after more than one month).

There is no rule of how you define the time component ... as long as you understand it, adjust it to your internet marketing processes and use it.

The time component is one of the more important aspects of measuring the conversion rate.

• Delayed Conversion
  The conversion most often does not happen at the first visit, or often even doesn't happen after months of visits. Consequently, a specific website element you might be measuring or a specific campaign might not show their real results even months after you've implemented them. Judging too quickly and without knowing all the aspects, such as the conversion purchase time scale after the first visit, will often provide the wrong answer.
  
  
• Comparing Different Website Elements
  In a website test scenario, perhaps doing a simple A/B test, you might be interested in seeing how different modifications increase your e-zine subscribe/visitor conversion rate.
  However, changing one element, such as the e-zine subscription box, might also reduce your immediate purchase/visitor conversion, because a strong e-zine subscription box might focus the visitor's attention to first subscribing to the e-zine.
  The question now would be whether the additional number of e-zine subscribers on the long-term generate a higher long-term purchase/visitor conversion rate and if the long-term conversion rate makes up for the loss in the immediate conversion rate?

The Conversion Time Component Example: E-zine Subscription Box

To better understand this, let's take a look at a quick example of the largest Slovenian webstore, Enaa.com.

The owner wanted to increase their e-zine subscriber/visitor conversion rate. Their first test was to move the e-zine subscription box from below the left-hand detailed navigation box to the top position in the left-hand column, putting it above the search box and above the left-hand detailed navigation box.

Now consider what this modification can cause:

• The e-zine subscription box is now highly exposed, thus increasing the e-zine subscribe/visitor potential.
  
  
  
• The search box and the left-hand navigation are now hidden deep on the left, with the left-hand navigation actually being below-the-fold, thus decreasing both the search potential and the ease of use with which users can navigate to all the product categories offered in the webstore. Hence, this modification might decrease the instant purchase/visitor and the short-term purchase/visitor conversion rates. Simply put, this modification means that we just decreased our short-term sales to non-subscribers.

Have you noticed that we mentioned three different conversion rates?

• e-zine subscribe/visitor conversion rate
• instant purchase/visitor conversion rate
• short-term purchase/visitor conversion rate

One simple website modification (moving the e-zine subscription box to the left-hand column top) caused a change in three macro-action conversions!

While increasing the e-zine subscribe/visitor conversion rate was our goal, we also need to understand that this simple modification also changed our sales conversion rates.

This is where the time component comes in.

• Increasing the e-zine subscribe/visitor conversion rate caused a higher influx of new e-zine subscribers.
  
  
• These e-zine subscribers will now receive our weekly sales communications via e-mail, thus increasing the number of contact touch-points.
  
  
• Since the increase in communications also increases our sales potential, it might be safe to assume that our long-term purchase/visitor conversion rate will increase, thus increasing our long-term sales volume.
  
  
• However, it is also possible that our e-mail communications are so ineffective that the gains in long-term purchase/visitor conversion gains might not make-up for the loss in the instant and short-term sales conversions, for example by generating a lower average purchase value than that of short-term conversions.

The lesson here is that certain modifications might show their true results only after a certain period of time, and may be linked to many of the other activities we are doing.

• Macro-actions
  The macro-action constitutes a complete action performed by the subject, such as finish a purchase, download a whitepaper, subscribe to an e-zine, register at the website, become an affiliate, recommend the website to a friend and so on. This is the big action you want your subjects to take.
  
  
• Micro-actions
  Micro-actions are a series of smaller actions or steps that need to be taken by the subject to complete the macro-action. For example, the complete a purchase macro-action might constitute of the visitor viewing the product page, adding the product to the shopping cart, entering his shipping details, entering his credit card and confirming the purchase. 5 small steps needed to complete the big step.

Bryan argued that each micro-action is a potential leak, where you might be losing macro-actions. By measuring the conversion only at the macro-level marketers are missing the real optimization potential of the website, since in order to optimize the macro-action conversion, you first need to optimize the micro-level conversions.

Consequently it should be clear that measuring just the macro-action conversion rate won't take you far enough. You need to start measuring and optimizing on the micro-level.

Now, to better understand this concept and to add a third dimension, let's take a quick look at a model I've been presenting at seminars in Europe for a few years now: Internet Processing.

This is also the model I've tried to implement in any company I worked with, with varying success, since fully working under this model requires alot of measurement and optimization. But not to worry, you can also implement very basic variations of the model, which don't take that many resources.

Quick Internet Processing Overview

Internet marketing is a process, not an activity. Hence, measurement and optimization cannot take place only on a single activity level, but should be done for your entire internet marketing process.

I'd need alot more space and time to really explain all the aspects of this, so we'll just take a look at the simple version right now.

Internet Processing consists of five distinct elements:

• The Macro-Process
  The macro-process is your complete internet marketing process that takes an uninterested internet user (who still needs to belong to your target audience, of course) through a series of steps (micro-processes), which on the long-term aim to convert that internet user into an evangelist for your company ... or any other status you wish to ultimately achieve with that user.
  
  
• Micro-Processes
  Micro-processes are the smaller steps needed for the user to reach your desired status. Each micro-process step changes the status of the user to a higher level. A micro-process can also be understood as a macro-action, but I'm using the term micro-process because each micro-process consists of a series of smaller steps needed to complete the process cycle.
  
  
• Micro-Actions
  Micro-actions are the smallest steps needed for the user to complete the micro-process. These micro-actions are the same micro-actions as discussed above.
  
  
• Macro Elements
  Macro elements are the various campaign types you are executing to get the user from one status to another. These are your input activities that influence the user. Examples include e-zine publishing, e-mail sales campaigns, advertising campaigns, search engine marketing and so on. E-zine publishing in this case would be a macro element.
  
  
• Micro Elements
  Micro elements are individual campaigns that you're executing. For example, if e-zine publishing is one of your macro elements, an individual e-zine issue would be a micro element.

Consequently, Internet Processing demands that you measure your conversion and optimize it on each of these five levels. Today we'll just take a look at the 3 parts that are most important for conversion rate measurement, and leave the details of the model for a later time.

Macro-Process

Imagine the macro-process as a sequence of all of the big steps you need to complete with a user to reach your ultimate goal, converting him from one user status to another.

The macro-process will be different for every company, based on your internet marketing strategy. The macro-process needs to support the strategy.

Let's take a look at a quick example:

The image represents an overall macro-process, with the boxes representing the micro-processes within the macro-process, and the lines showing the current status of the user.

When measuring the macro-process conversion, you are measuring your conversion of getting the user from one stage to another, as displayed here:

For example, the 10% conversion rate from first-time visitor to e-zine subscriber tells you that 10% of your first time visitors are converting into e-zine subscribers. And then, 10% of your e-zine subscribers are converting into loyal subscribers.

What happens if we add some numbers?

• Internet users reached: 100,000,000
  (our online advertising campaign)
  
  
• First-time visitors acquired : 10,000,000 [10%]
  (the number of visitors we received from the 100,000,000 users reached at a 10% first-time visitor/internet user conversion)
  
  
• E-zine subscribers: 1,000,000 [10%]
  (the number of e-zine subscribers we converted from the 10,000,000 first-time visitors at a 10% conversion rate)
  
  
• Loyal subscribers: 100,000 [10%]
  (the number of loyal subscribers we generated from the 1,000,000 e-zine subscribers at a 10% conversion rate)
  
  
• Customers: 11,000 [10% & 0,01%]
  (the number of customers we converted from the 100,000 loyal subscribers at a 10% conversion rate, and the 1,000 customers directly generated from first time visitors at a 0.01% conversion rate)
  
  
• Satisfied customers: 1,100 [10%]
  (the number of satisfied customers we generated from the 11,000 customers at a 10% conversion rate)
  
  
• Loyal customers: 110 [10%]
  (the number of loyal customers we generated from the 1,100 customers at a 10% conversion rate)
  
  
• Affiliate partners: 11 [10%]
  (the number of affiliate partners we converted from the 110 loyal customers at a 10% conversion rate)
  
  
• New first-time visitors from our affiliate partners: 1.1 [10%]
  (the number of new first-time visitors we received from our 11 affiliate partners at a 10% conversion rate)

Micro-Process

Now, to understand the power of this model for optimization, consider what happens if you increase your overall conversion from first-time visitors acquired to e-zine subscribers acquired, keeping all the other numbers the same.

Let's say that you manage to increase this conversion to 30%:

• Internet users reached: 100,000,000
  
  
• First-time visitors acquired : 10,000,000 [10%]
  
  
• E-zine subscribers: 3,000,000 [30%]
  
  
• Loyal subscribers: 300,000 [10%]
  
  
• Customers: 31,000 [10% & 0.01%]
  
  
• Satisfied customers: 3,100 [10%]
  
  
• Loyal customers: 310 [10%]
  
  
• Affiliate partners: 31 [10%]
  
  
• New first-time visitors from our affiliate partners: 3.1 [10%]
  

Instead of 1,000,000 e-zine subscribers you now have 3,000,000, and this eventually converts to 30,000 customers as opposed to 10,000 customers ... just by optimizing your e-zine subscription process.

It needs to be admitted that this demonstration is taking a much to simplistic view of the conversion process, but it should be enough right now to show you the power of taking an overall look at your internet marketing process.

But, in order to get this kind of increase, you actually need to optimize the lead generation micro-process, which in this case is also 10% when we start with it.

So, we need to take a look at the lead generation micro-process:

What does this process tell us?

• 50% of first-time visitors clicked on the whitepaper banner, which eventually leads to the e-zine subscription
• 90% of these entered their e-mail address on the first step
• 40% of these entered the additional required information to register
• 56% of these confirmed their subscription
• In total, 10% of first-time visitors completed the lead-generation micro-process to convert into an e-zine subscriber

To optimize this micro-process to achieve the increase of the e-zine subscriber/first-time visitor conversion rate to 30%, we have two optimization routes, and one of them takes place on the overall micro-process level.

The simplest thing to do --> remove the confirmation micro-action:

By removing the confirmation micro-action, the total conversion rate for the lead generation micro-processes jumped to 18%. This is optimization on the micro-process level.

Micro-Action

The other optimization route is optimizing the actual micro-actions that form the micro-process, for example optimizing the whitepaper banner in such a way that a higher % of first-time visitors take notice of it and click on it.

At the same time, we optimize the field for entering additional information, perhaps removing some required fields to make things easier for our visitors.

• 60% of first-time visitors now click on the banner.
• 80% of these enter their e-mail address. As you will notice, this decreased from 90% from the previous example, since the more attractive banner generated more clickers that really weren't that interested in going forward once they saw what it's about.
• 63% of thee entered the additional information and completed the lead generation micro-process.
• The overall conversion rate for the lead generation micro-process jumped to 30%.

This was optimization on the micro-action level.

Again, all of these examples were fairly simplistic and did not take the entire complexity of the issue into account, but they should be enough to demonstrate the Internet Processing model, which we will cover in greater detail in the weeks and months to come.

If you're thinking "Nah, I already know all of this", give me a few more minutes. The conversion isn't just about knowing what % of your traffic is turning into buyers or comparing test variables against each other. And, if interpreted incorrectly, it leads to many mistakes that make a dent in the bottom line.

But first let's define the conversion rate ...

What is Conversion Rate?

Wikipedia defines the conversion rate as ...

"... the percentage of unique visitors who take a desired action upon visiting the website. The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a whitepaper, or some other measurable action."

While this definition is a good start, a broader definition is needed:

The conversion rate is a % of unique actions that result from unique exposures.

The keywords here are:

• Actions - a clearly defined measurable activity performed by the unique subjects exposed to our call-to-action [CTA]
• Exposures - a clearly defined measurable CTA, presented to a number of unique subjects
• Subjects - the number of individuals exposed to the CTA
• Unique - all single and clearly identified actions and exposures are only counted once for each individual subject
• Call-to-Action - an expressed request for the subject to take the required action after viewing our creative

How is this different from the Wikipedia definition (which comes closest to how marketers view conversion)?

• The conversion does not necessarily need to be linked to a website or even happen on a website.
  For example, in my e-commerce work I measure the conversion for multiple interactive elements, such as conversion per e-mail open-rate, conversion per ad impression or even conversion from e-mail sent to telephone contact.
  By applying a broader meaning to the term conversion rate you are able to apply the conversion rate methodology to a larger number of key interactive elements you wish to measure and improve.
  Hence, in the definition, we need to get rid of "upon visiting the website" but rather use the term "exposure".
  
  
• Unique visitors really cannot be measured accurately online, due to several technical issues.
  You can never be certain that two people you are counting as two unique users are really two different people. They might be just one person, accessing your website from two different computers.
  And the same goes for an e-mail address; you might have multiple e-mail addresses in your database, belonging to just one real person.
  Or even better yet, the visitor might not even be a person, but a computer script.
  Consequently, the term unique visitor is really a bad choice of word that might lead to misinterpretation.

The Conversion Rate Formula

The conversion rate formula is simple:

Conversion Rate = Unique Actions / Unique Exposures

Two quick examples to make this easier to understand:

• Overall Website Sales Conversion Rate = Unique Sales / Unique Visitors
  [if your Overall Website Sales Conversion Rate is 5%, it means that 5% of the people that visited your website purchased something]
  
  
• Overall E-mail Sales Conversion Rate = Unique Sales / Unique E-mail Addresses
  [if your Overall E-mail Sales Conversion Rate is 2%, it means that 2% of the people that your e-mail was sent to purchased something]

This is of course a very simplistic conversion rate formula. In most cases you would need to go into much more detail to get any usable numbers.

What You Are Actually Measuring With the Conversion Rate?

• The conversion rate is a measure of your efficiency. It tells you approximately with what efficiency you are getting the people that are exposed to your CTA to take the action you want them to take. There are several different types of conversion.
  
  
• The conversion rate does not tell you the whole story about your efficiency --> it depends on the sources of traffic you are utilizing, the audience you are reaching, your brand, all of the elements of your CTA and so on. Consequently, the conversion rate is an indication of your overall internet marketing efficiency, not just your website efficiency.
  
  
• The conversion rate is not a measure of your success. It only tells you part of the story. And in some cases, as we already discussed, a lower conversion rate might actually be generating better financial success than a higher conversion rate.
  

How Precise is the Conversion Rate?

Due to multiple internet technology issues, the conversion rate is not a precise measure. It should not be viewed as an absolute metric, but rather used as a trend indicator.

The more focused your conversion rate measurements, the more precise trends you will get.

• For example, measuring the overall sales conversion of an entire website with all of its traffic sources gives you a completely useless number.
  
  
• Measuring the overall sales conversion for a single type of traffic source, such as Google, gives you a number you can start working with.
  
  
• Measuring the overall sales conversion for a single Google campaign gives you really the first usable piece of information.
  
  
• Measuring the conversion rate of various sales process elements for a single Google campaign gives you a strong piece of information that you can use to improve your marketing.

How You Can Use the Conversion Rate?

• Improve the performance of your campaigns without increasing your ad spend.
• Improve the overall performance of your website or other CTAs.
• Forecast the sales results of your online advertising campaigns.
• Compare different interactive test elements.
• And much much more ...

OK, enough for the start. If this article seems a little technical in nature, don't run away. I promise the next one will be more practical, as we start looking at the various types of conversion rate you can measure.

One of such problems, covered in the previous example, is that a higher conversion rate may actually be costing you money. We took a look at a real DVD sales example where 2 price points were tested. The higher price point generated a lower conversion rate (CR), but greater overall profits due to a higher margin.

In this case, looking at the CR, but not looking at overall project profitability, would lead us to making the wrong decision.

Today I want to cover one last example of CR measurement problems, before we move into actually using CR to measure and optimize your performance.

For this example, let's take a look at a single website that's testing two different elements to see which one generates a higher conversion rate.

With the above numbers, we're looking at the aggregate CR data for each element, trying to asses the one we should go with to reach the best possible results.

Not looking at any additional data, Element #2 would be the clear winner.

But in this case, the website did the test using two different traffic sources. Today we won't look at all of the traffic source specifics, such as costs, sales, CPO or profits, but just at the implications of what using different traffic sources means for your CR.

When evaluating these numbers let's presume that both the traffic sources:

• generated an equal amount of traffic in total,
• generated an equal amount of traffic per test element,
• cost the same,
• generate the same value per converted customer.

This would of course never be the case, but adding additional data would just further complicate things at this point.

So, looking at the data, it's clearly evident that Traffic Source #1 generates a high conversion rate for Element #1 and a lower conversion rate for Element #2, and vica verca.

When doing your online advertising, this is a very realistic scenario. Each traffic source caters to different audiences, who will react differently to your marketing messages.

In this case, each traffic source's audience responds better to an individual test element.

Everything else being equal, this means that determining any of the two test elements in the test as a clear winner would be a big mistake, wasting you customers and money.

What's the solution?

Quite simply, if and when your tests prove that different traffic source audiences respond differently to your different test elements, the only solution is to implement a solution that allows you to display the winning element for that traffic source to the audience that comes through the source.

Essentially, both of the test elements are winners. You need to select both.

Now, I haven't studied his visitor engagement metric well enough yet to really comment it as it applies to this example, but let's try some basic optimization techniques to see how those could increase his book sales.

1. Establish a Call-to-Action at the Bottom of Each Blog Post

I'm not familiar with Eric's clickstream paths, but the first question is, how many of his visitors from the referring blogs are actually exposed to his "Buy My Book" Call-to-Action (CTA). How many actually click to his first page, where the CTA is more exposed, even if below the fold?

The first thing to do would be to add the CTA for the book directly below each blog post, actually building on the blog post to try to directly sell the book then and there. Basically telling them what to do, after they're done reading the post --> buy the book.

2. Provide Multiple CTA Options

However, as Eric states in his post, a good deal of the visitors entering his site from the problematic blogs actually start the purchase process, but don't finish it.

He is generating some interest, but not enough to have them to complete the purchase process. And then we still have the prevailing majority that don't even start the purchase process.

This would demand some testing, but my first instinct would be to go with a soft offer, such as a free whitepaper, and then try to make the sale through the whitepaper and the additional 7-day, 14-day or more e-mail or RSS follow-up sequence.

At least in my own tests adding a free whitepaper offer + follow-up sequence always increased total sales, CR and profits.

3. More Compelling CTAs

Eric does offer free chapters of his book on the first page.

However, to capture more leads, it might work to test offering a full free e-book VS just sample chapters. Usually, I wouldn't be interested in free chapters unless I was already in the purchase process ... but if you give me a "10 KPIs That Make or Break Your Internet Sales" free e-book, I just might budge.

4. Provide Multiple CTA Opportunities

Following the steps above, Eric would put a CTA for the book below each blog post. But to really maximize the opportunities, I would also put a CTA (perhaps a different one, but one that would still lead to the book purchase in the end) in the top right hand corner of the website.

5. Optimize the Purchase Process

• Add more information (sales letter, list of chapters, testimonials, add risk reducers etc.) to the product landing page
• Shorten the sales process to fewer steps
• Make purchase buttons much more visible

The key message throughout the two articles was that conversion rates tell only a small part of your internet sucess (or failure) story, but never enough to enable you to come to any concrete conclussions, at least without taking a look at all the other relevant data.

Today, to bring the final point home, we'll take a look at an example of when the conversion rate missleads you into making the wrong decision.

I Want a Lower Conversion Rate

The following data is from a real example we had a couple of months ago. When selling a DVD package, we split-tested two different price points againts eachother: $54.95 and $77.

Here are the conversion rates (CR) for both of the tests:

Price point $54.95 generated 61% more sales quantity than price point $77.

Just by looking at the CR, it would seem that $54.95 is the better way to go, right?

The results stay the same even after we add the sales quantities and other data:

Even with a bigger price tag, the $77 price point generated 13.5% less revenues. But is it better?

The CR would certainly indicate so, but not when we also add the margins:

Essentially, the $77 price tag generated more profits, even though it generated a smaller CR, smaller sales quantity and smaller revenues.

Clearly, in this case, using the CR, sales and revenues to determine the best price tag would result in lower profitability of the project. Instead it was better to opt for a smaller conversion rate, less revenues and smaller sales quantity, but better profits.

So how important the CR really is?

What do you base your optimization decisions on?

Will be discussed in future posts ...

As we could see, the overall CR of the two websites is in fact the end result of the CRs the websites are achieving from each traffic source type.

Since their traffic sources structure differs, it is immediately more difficult to compare their conversion rates side by side, making benchmarking highly unreliable, even as an indication. The question we left off at was whether the data we have is enough to at least benchmark their internet marketing efficiency.

Round #3: Adding Traffic Source Data

While the CR can be a so-so indication of their efficiency, it does not provide nearly enough data to come to any reasonable conclusions.

The next logical step is adding their traffic source data to the comparison table.

Now we can finally see the tremendous differences between the websites and how they are marketed. Website #1 receives app. 7 times more traffic than Website #2 and has 3,5 more customers than Website #2, although it has a much lower conversion rate.

Unfortunately this hasn't really solved our mystery, but only reinforced the questions we started with.

Which of the websites is more efficient? The one with higher traffic and more customers, or the one with lower traffic, less customers, but a higher conversion rate?

The one thing that is clear is that Website #1 needs twice more traffic to generate the same number of customers as Website #2 ... if we look just at the overall conversion rate.

But what happens if we remove banner advertising from Website #1 from the equation?

With banner advertising out of the picture, Website #1 is now clearly the winner, strongly outperforming Website #2 in terms of CR, traffic and customers.

Just removing one traffic source from our strategy utterly changes the overall CR.

It's the same when you try to benchmark your website and internet marketing against the industry standards. You are comparing your unique mix of traffic traffic sources with hundreds of other websites with their own unique mixes of traffic sources. Change just one on your side and the story changes completely.

Is it clear now that industry conversion benchmarking is a hoax?

OK, if you don't believe me yet ...

Round #4: Adding Monetary Data

The key reason we are in the internet business is to make profits, making it impossible to benchmark without also knowing the monetary values behind the % and the traffic numbers.

Let's bring back banner advertising to Website #1 and also add the needed monetary data to bring the case home.

Now things really became interesting, and we can finally start seeing the big picture.

• Website #1 is generating 2,5 times more revenues than Website #2
• Website #1 has a CPO (cost-per-order) of 16,89% against a CPO of 3,73% for Website #2, meaning that it spends much more money to make a $ than Website #2
• Website #2 generates much higher revenues per customer, indicating either that it is selling more expensive products or has a better cross-selling mechanism in place [another element that the CR does not take into account]

What's the conclusion?

• Website #1 is more efficient overall in terms of conversion, since it seems that only its banner advertising is driving conversion down
• Website #2 is spending its advertising money much more wisely, since its CPO is a fraction of the CPO of Website #1
• Website #1 is spending much more money on advertising

Based solely on all of this data, is there any way we can conclude which website (and marketing) is performing better?

By any means no.

Round #5: Profitability

To get the final answer, we need to look at actual profitability of both of the websites. Without going into much detail, here's the new comparison table:

Just looking at their revenues and advertising costs, Website #1 is still doing much better than Website #2, although it is not spending its money efficiently if compared with Website #2.

But to get the answer, we still need to look at their other costs.

Just by also taking into account their overhead and cost of goods sold the picture is now entirely different. Website #1 is now actually unprofitable, while Website #2 is showing a good profit.

Again, just by looking at the numbers it now seems that Website #2 is much more successful than Website #1.

Round #6: Figuring in Business Goals

We could leave it at that. Website #2 is more successful, since it's more profitable.

Now, to complete this game, let's also figure in their individual business goals.

• Website #1 is contending to become the market leader and is so investing alot more money right now into capturing market share. They understand that short-term losses will transform into long-term profits.
• Website #2 is struggling in its market and is only hoping to keep its current market share, and they do not have enough financing to make the move towards market leadership.

In this regard, the final winner would be Website #1.

Going from start to finish, it should now be apparent that is doesn't make any sense whatsoever to benchmark your conversion rates against any industry standards, because:

• Each website employs different sources of traffic
• Each traffic source is converting at different levels
• Each website is paying different amounts per visitor
• Each website is achieving different revenues per visitors, either due to initial product value or due to the differences in their cross-selling approaches
• Each website has a different CPO
• Each website operates under different costs
• Each website generates different profits
• Each website has different goals

And I could go on and on and on.

All of these elements, and many others, make it impossible to compare websites side by side.

Stop benchmarking your conversion rates against industry standards. It doesn't work and it doesn't tell you anything. It only either puts you in a good or bad mood, but makes you ignore all the other factors that really impact your overall marketing success.

Project Manager: "So, what's our average website conversion rate?"

Internet Marketer: "Oh, I don't know. Somewhere around 3.5%."

Project Manager: "Really ... Because I just read the latest ACME Conversion Rate Report and it says that the average conversion rate for our industry is 5.8%. Why is ours so low? What are we doing wrong?"

Just replace project manager with any title that comes to mind, like CMO, CEO, CFO and any other title that doesn't do conversion optimization for a living.

Everyone wants to know about your conversion rate (CR) and everyone is keen to compare it with the latest figure they read in one of the numerous benchmark reports, naturally written by reputable research companies. "Why aren't we doing so well?" or sometimes even "Wow, we're doing great!" is the feedback you receive after reluctantly giving the answer.

Welcome to conversion benchmarking hell.

But the simple truth of the matter is, website conversion industry benchmarking is the biggest hoax of the interactive industry.

It's the one piece of data that doesn't tell you how well you're doing in comparison to anyone else, period. Simply because there is no such thing as "average conversion rate".

No Conversion is Created Equal, Period!

To bring the point home, let's compare two websites from the same industry just from the overall CR viewpoint.

Round #1: Overall Average Conversion Rate

Knowing only this data, one would assume that Website #2 is performing better than Website #1 in converting website visitors into customers.

But is it really?

Round #2: Overall Conversion Rate by Traffic Source Type

If you look at our table now, the various traffic sources utilized by the two websites come into focus, showing how well the websites are converting traffic by traffic source type.

This only makes sense, since the traffic generated to each website comes from a mix of different sources, each with its own specifics.

But because the website's efficiency is also impacted by the quality of the traffic it gets, the CR is an overall indicator of our internet marketing efficiency, not just our website efficiency.

This is where things get more complicated.

If we want to compare the two websites in terms of conversion, we first need to understand how specifically they are generating traffic.

In this case it might seem that Website #1, while being less efficient overall, is doing better in terms of converting direct traffic and SEM traffic, but is not performing as well in other departments. Website #2 is doing better with SEO and e-mail, but is not doing any banner advertising at all.

Here's the first catch. Banner advertising will almost always drive your overall conversion down. Just the fact that Website #2 is not doing any banner advertising at all should tell us that it is impossible to benchmark the two sites against eachother.

But is it enough to benchmark their internet marketing efficiency?

To be continued ...

Eric T. Peterson's Analytics Weblog
Eric is considered one of the top authorities in the online analytics space, and his blog is simply said a masterpiece of advanced online analytics. One of his specialities is the Visitor Engagement index that allows you to measure long-term engagement of your visitors and their value beyond "just sales".

GrokDotCom
The Eisenberg brothers are masters of conversion optimization, especially specializing in persuasion architecture. While I don't always agree with their methods, especially when it comes to e-commerce conversion, their blog is some of the best places in the industry to help you optimize the return on your traffic.

Lies, Damned Lies ...
The place to go if you're interested in the state of the online analytics industry with a no-prisoners-held approach.

Marketing Experiments
The best resource on the planet if you want to know what works and what doesn't. These guys do optimization for the biggest websites and then report on their results, with clear how-tos and insights. I actually had my Internet Analyst take their testing course.

Occam's Razor
Another top resource for hard-core online analytics. Highly recommended.

The Unofficial Google Analytics Blog
If you want to learn how to use Google's free analytics solution, this is the place to go.

WebMetricsGuru
The name say it all:) Also highly recommended.

Please post your own recommendations below.

Essentially, this was the next logical step in the website evolution, considering that B2C e-commerce is in my blood, a passion, and something I do every day.

While I did say B2C e-commerce, the lessons learned can be applied to any other interactive field and to B2B is as well.

Why Read This Blog Anyway?

• Get the spin on interactive marketing optimization from an e-commerce director's point of view, working from the perspective that every online activity needs to generate a positive ROI
• Learn channel integration strategies and processes that combine everything from direct response television, telemarketing and direct mail to online
• Get a view of interactive optimization from the Central and Eastern European perspective, although rooted in US experience and approaces
• Take a fully actionable approach to online analytics and optimization

What Qualifies Me to Write About Interactive Optimization?

• I'm the International Internet Director for Studio Moderna, managing our internet operations in 21 CEE countries, with more than 130+ e-commerce sites
• Interactive optimization, in addition to long-term strategy development, is the key focus of my internet marketing activities
• I'm responsible for direct internet sales in 21 countries, as well as keeping all internet costs within strictly set boundaries
• I work in a 100% multi-channel environment
• I know my business:) It's not just work, but a hobby and a passion

But enough about me.

This blog is about how you can optimize your interactive marketing activities.