What Is A Good Conversion Rate?

by Alex Cleanthous, August 19th, 2010

As an online marketing agency that develops websites we often get asked the question ‘what is a good conversion rate?’. And while it may seem like a simple question, the answer is a little more complicated.

There are 6 factors that define what a good conversion rate is:

Source of the traffic
Cost of the traffic
Type of conversion you are measuring
Maximum amount you can afford to spend for a conversion
Sales conversion rate
Number of sales you want

Now let’s take a look at each of these factors in a little more detail…

1. Source of the Traffic

Different traffic sources produce different types of traffic. One source may produce higher quality traffic than another. And the higher the quality of the traffic, the higher the conversion rate. For example, running a pay-per-click (PPC) campaign on Google Adwords is one of the highest converting advertising channels because you can choose to only show your ad when somebody is actively searching for your product or service. Banner advertising, on the the other hand, is a much lower converting advertising channel because you are advertising to prospects that are not actively searching for your product or service.

2. Cost of the Traffic

Different traffic sources have different cost structures. Using the same example as before, Google Adwords is a high converting traffic source but it also has a high cost-per-click for keywords that produce conversions. As banner advertising is a lower converting traffic source, it has much lower cost-per-clicks as the traffic is much less qualified. In any form of PPC advertising the higher the quality of traffic, the higher the cost. Vice versa, the lower the quality of the traffic, the lower the cost.

3. Type of Conversion You Are Measuring

Different offers have different conversion rates. A free report will have a higher conversion rate than a form submission for a free consultation. A free consultation form will have a higher conversion rate than an online sale from an ecommerce store. The higher the commitment required from your visitor, the highest the quality of the lead, but the lower the conversion rate. The easier you make it to take action, the higher your conversion rate will be.

Think about it… if somebody requests a free report they’re probably still in the research stage of their buying decision. If somebody submits a form for a free consultation they are closer to making a buying decision than the person who requested a free report. And the person who makes a purchase online is ready to buy now, and is the highest quality visitor.

4. Maximum Amount You Can Afford To Spend For A Conversion

Your cost-per-action (CPA) is the amount it costs you for the conversion on your website. If 100 people visit your site at a total advertising cost of $100 and 5 people download a free report your CPA for ‘free report downloads’ is $20 (ie $100 / 5 = $20). On the other hand, if nobody downloads a free report but one person submits a form for a free consultation your CPA for ‘free consultations’ is $100 (ie $100 / 1 = $100). The most you can afford to spend for a conversion depends on how many conversions it takes for you to make an actual sale. Which leads me to my next point…

5. Sales Conversion Rate

If you have an ecommerce store, then this point does not apply as your sales are made online. But if you don’t have an ecommerce store then this point is critical. Your sales conversion rate is the rate at which you convert your website leads into sales (which is where you earn a profit). The better you are at converting your website leads into sales, the more you will be able to spend for a website conversion. This is where it gets a little more complicated.

As we discussed earlier, different conversion types have different levels of quality. A ‘free report’ lead is of lower quality than a ‘free consultation’ lead… and quality is defined by the conversion rate required to make a sale. The CPA for a ‘free report’ lead may be 20% of the cost of a ‘free consultation’ lead, but the sales conversion rate of a ‘free consultation’ lead is 10 times higher. This means that it’s actually more cost-effective to focus on getting as many ‘free consultation’ leads as possible. Make sense?

6. Number of Sales You Want

At the end of the day the reason we market online is to drive more sales, right? So the ultimate goal of any online marketing campaign is to drive the maximum number of sales within the current marketing budget. As your business grows online, so will your marketing budget. And the bigger your marketing budget is the more traffic sources you’ll need to invest in to maximise your sales.

In the early stages you’ll probably be focusing on higher converting traffic sources like PPC and SEO, but as your business grows and you start to maximise the traffic available from these sources you’ll need to start investing in other sources, such as banner advertising. Because these sources produce lower quality traffic the conversion rate will be lower, but because they cost less as well the CPA for a website conversion may be the same (or even lower) than the higher quality sources.

So What Is A Good Conversion Rate?

A good conversion rate will always be determined by your competition and the most you can afford to pay for a conversion (while still making a profit). The better their website and sales conversion rates are, the higher yours will need to be just to compete. And if you have 10 really strong competitors then you’ll need a really strong website and sales conversion rate to be able to succeed online. On the other hand, if you’re in a market where the competition doesn’t really know what they’re doing online (and there are a lot of these markets) then a low conversion rate will suffice.

Two Quick Examples

Here are two quick examples to give you a better understanding of what a good conversion rate is. In one market we’ve been involved in the conversion rate of ‘free consultations’ was over 10% from 2,000 Google Adwords visitors per month. In another market, the ecommerce conversion rate was 0.5% from 1 million banner advertising visitors per day (this same site converted at 28% from Google Adwords visitors). Importantly, in both examples the client was very happy as the conversions were achieved within their target CPA range.

How To Assess Your Conversion Rate

Before you can assess your conversion rate you’ll first need qualified prospects visiting your site. When that is happening, the best way to assess how good your conversion rate is to ask yourself ‘am I generating a profit from my website visitors?’. If you are then your conversion rate is good, if you aren’t then your conversion rate isn’t good. And if you aren’t then you need to work at improving your conversion rate through either a complete overhaul of your website design or through ongoing split-testing.