Tuesday August 11, 2015

How Are You Calculating Your Conversion Rate?

Quick: what’s your company’s conversion rate? 

Remember that percentage; we’ll come back to it in a minute. 

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Having a handle on your business’s conversion rate is a critical step toward being able to predict marketing ROI. (For more on this, see our post on how to use your conversion rate to develop ROI metrics for marketing channels.) While the question ofhow to calculate your conversion rate might seem obvious at first, I think it’s worth a closer look.

Here’s why.

Your Conversion Rate Isn’t 95%

We hear this all the time when we start with working with a new client. As part of the kickoff, when we ask about conversion rate, the typical answer is at least 90%. More often it’s 95% -- and sometimes it’s even 100%.

If your answer above was in the 90-100% range, you’re not alone – but you should probably reconsider that number.

Why?

When small businesses make the transition from relying on referrals to investing in growth through marketing, this will have a significant impact on the types of leads that come in. Most referrals are by nature ‘hot’ leads – these are people who have come to you because someone they trust sent them your way and they may not even be considering anyone else. Closing these leads is easy; your conversion rate should be close to 100%.

Once you begin opening new marketing channels, you’re casting a wider net than you were with word of mouth – which means you’re going to start seeing leads that may be much higher up in the sales funnel.

For example, let’s say you begin investing in a paid search campaign; assuming this is a good fit for your business, you’ll likely start seeing a mixed bag of leads – some ready to convert into customers right away, some who contacted you along with seven of your competitors and some who clicked accidentally/are looking for a job/are doing competitive research/“can guarantee to get you #1 on Google good sir!” etc. That second batch is comprised of quality leads – and it’s important gain visibility with them if you’re intending to grow your business – but these cannot be treated the same as the referral who’s ready to convert before the first contact is even made.  

Expecting to maintain a 95% conversion rate during this phase is not realistic, and it will skew your planning if you allocate your budget and resources based on these projections. If you don’t know what conversion rate to expect, that’s okay; start with an estimate that’s 10% more conservative than what you think it might be for non-referral leads and carefully track and measure your leads and conversion data so that you can hone in on a more accurate estimate as you move forward. 

If you’ve calculated your conversion rate based on data from a variety of sales and marketing channels and you’re still at 95% -- congratulations and please send me the name of your sales coach.

Charlie Nadler

Written by Charlie Nadler | Tags: ROI

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