“Sweet Analytics, Tis thou has ravished me!”
(Christopher Marlowe: Doctor Faustus 1.1)
When it comes to focusing on your website metrics, most people will point to the conversion rate as being the most important. But is this really the case?
Of course, the higher the conversion rate the more sales you will make, but doesn’t always mean that a higher conversion rate will necessarily equal more total income.
The reason for this is that sometimes the conversion rate can actually lead you to draw the incorrect conclusion as to why something is working or why it isn’t.
Here is a closer look at what a conversion rate is and how to understand what it is really telling you.
What Is Your Conversion Rate?
There are a number of different factors that you can use to determine your conversion rate, however it essentially shows you a number of actions divided by the number of visitors.
For example, if you are talking about sales, then the conversion rate is the number of sales divided by the number of people who landed on the sales page, however it can be used to track any action you can measure.
How You Can Draw the Wrong Conclusion From Your Conversion Rate
The fundamental reason why people misinterpret the information that they have is that they don’t understand the relationship between different analytics.
Here is a closer look at a few examples of how a conversion rate will lead you down the wrong path.
Let’s say you are testing out different price points. You could have a much higher conversion rate at a much lower price, but still end up with less income.
This is because you are comparing price points that are so far apart that you will make more by selling less at a higher price.
Another way that your conversion rate can lead you astray is when you are running a special promotion or giving away a limited time coupon.
On the one hand, the increase in the conversion rate doesn’t automatically mean that you generated more income because of the price discount included in the coupon.
On the other hand, a large number of people may have purchased the product without the coupon, so you would need a way to track the two sets of customers and compare the two metrics to get a more accurate picture of your conversion rate.
It is common practice to try and limit friction from within the checkout process because the higher level of friction, the higher the number of people who will abandon it without making a purchase.
Some of the things that cause friction are up sells, down sells, and related items pages. At the same time, all of these things are proven to help you generate more total income, even though your conversion rate will be lower.
4. Banner Ads / PPC Ads
Anytime that you are sending cold traffic to your website your conversion rate will always decrease, but that does not mean that you are selling less.
As you can see, there are times where your conversion rate should not be your most important metric because it can provide you with information that will lead you in the wrong direction.
So what other metrics should you look at?
Here are a couple that tend to stand out as always impacting your bottom line.
Lifetime Customer Value – This will let you know how much money you will make per person, on average. This metric is important because it tells you how much you can on advertising per person who enters your funnel.
Return Rate – Another thing to consider is your return rate. You could have an incredibly high conversion rate, but if most people ask for a refund then your high conversion rate is relatively meaningless. Normally, this is an indicator that you are not meeting the expectations that you set on your sales page.
Return On Investment (ROI) – How much does it cost in advertising to get a sale? You could have a very low conversion rate, but also a low cost, high traffic advertising source that delivers better results than a more expensive alternative which yields a higher conversion rate but fewer sales for the equivalent advertising expenditure.
Don’t be like Doctor Faustus and get your analytics wrong; it could be the death of your Internet business…