How to Calculate Conversion Rate (With Example and Benefits)

By Indeed Editorial Team

Published June 26, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Sales and marketing campaigns are important to the success of any business. Conversion rates allow companies to assess the success of their campaigns. Understanding how to calculate conversion rate can help you review and improve marketing strategies efficiently. In this article, we define conversion rate and highlight its types, explain why it's important, list steps to calculate it, provide tips for optimizing it, and give an example of the calculation.

What is conversion rate?

Conversion rate refers to the percentage of potential clients that visit a company's website and perform a desired action. This action could be purchasing its products or filling and submitting a form. Conversions typically translate into sales, profit, and revenue for the company. Calculating this rate helps companies learn the market demand for their products, determine the success of their marketing and advertising strategies, and select the appropriate marketing channels.

Related: 10 Lead Conversion Metrics You Can Track for a Business

Types of conversion rates

There are different types of conversion rates, such as new visitor and return visitor. New visitor describes potential clients visiting a company's website for the first time. Website cookies track customers' search histories and related searches. These cookies may also term customers as new visitors if they visit the site on a new device. Companies typically use this to track the number of new visitors that open their website. The new visitor conversion rate calculates conversion using only the segment of customers that are new visitors. The site's content and ease of navigation can increase or decrease this rate.

Return visitor describes potential customers who visit the site multiple times. They may return to conduct more research about the company and its product or complete transactions. Return visitors typically have higher conversion rates as they're more likely to buy a product after viewing it previously. Adjusting the website to fit their preferences encourages customer loyalty.

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Importance of calculating conversion rate

Here are some benefits of calculating the conversion rate on company websites:

Understanding the target market

Calculating the conversion rate can inform companies about the ads, services, and offers that attract customers. The marketing team can determine the aspects of the website that gained the highest conversions. This informs them of customer preferences and helps them learn about customer needs. The marketing team can modify its advertising strategies according to these preferences.

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Improving the marketing budget

Companies usually spend a lot of money on their marketing budget. The conversion rate may inform the marketing team about successful advertising campaigns and why customers respond to them. Making decisions based on the data that the conversion rate represents allows companies to make rational changes with a high probability of success. It also allows them to focus their budget and resources on campaigns with a high chance of success.

Related: How to Calculate Growth Rate (With Formulas and Examples)

Reducing customer acquisition cost

Customer acquisition cost describes the cost of gaining one customer. Companies may spend resources on paid advertising and other expenses for marketing their products. Spending resources on marketing without gaining sufficient clients may increase the customer acquisition cost. Companies can learn to use relevant ads that customers consistently respond to by calculating the conversion rate. This means they can lower their customer acquisition cost and increase their profit by spending less.

Related: What Are Sales Metrics? (Definition, Types, and Importance)

How to calculate conversion rate

Follow these three steps to learn how to calculate conversion rate:

1. Gather the necessary data

Before calculating the conversion rate, gather data that accurately describes the traffic on the company's website. Identify the total number of visitors to the site or landing page during a specific period. The landing page describes a standalone page that encourages visitors to take the desired action, such as purchasing a product. Using this value, you can identify the number of visitors that performed the required action and count it as a conversion.

2. Use the conversion rate formula

The formula for calculating the conversion rate is:

Total conversion rate = (Conversions / Total visitors) × 100

If 16,000 people visited the company's website in one quarter and the total number of conversions was 3,000, the conversion rate calculation looks like this:

Total conversion rate = (3,000 / 16,000) × 100

Total conversion rate = (0.1875) × 100

Total conversion rate = 18.75%

Ensure the required values are accurate before inputting them in the formula. Companies typically represent the conversion rate using percentage values.

3. Analyze the value

After discovering the conversion rate, you can analyze this value and review its implications. You can assess the significance of the conversion rate using industry standards, product expectations, and company goals. If the conversion rate over different periods shows a steady increase, this can indicate that the company is experiencing growth. Many companies aim for a conversion rate of 12%.

What is conversion rate optimization?

Conversion rate optimization describes a company's actions and strategies to increase the number of potential customers that execute desired actions on its website. It may involve using tools that help it track the progress and traffic on its landing page and website. Conversion rate optimization activities may include researching the preferences and needs of users, assessing the actions of competitors, and modifying the designs and features of the landing page or website.

Before conducting conversion rate optimization, the company typically defines its goal for these activities. For example, it may want to increase the conversion rate for a specific product. A conversion rate optimization strategy may include modifying and improving its website. The company typically selects a specific area of the website it wants to improve. For example, its goal might be to make the homepage as interactive and attractive as possible to gain customers' attention.

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Tips on optimizing conversion rate

Here are helpful tips you can apply to optimize conversion rate:

Utilize call-to-action posts

Call-to-action posts describe words, phrases, or headlines that encourage customers to perform a specific action or make an immediate purchase. Marketing teams typically include a call to action in their blog posts to promote sales. They may also place them in visible places on the company website. Ensuring that these posts are clear and compelling can help optimize the conversion rate. The marketing team may test different placements and designs for a call to action to find the most appropriate one.

Related: 10 Effective Strategies for Generating Leads in Marketing

Test the landing page

Landing pages are important for encouraging potential customers to make purchases. A/B testing allows the marketing team to compare two versions of a particular web page and identify the one that performs better and has a higher conversion rate. This allows the team to modify its content and design according to the results of these tests. Implementing these changes ensures that the landing page is more effective.

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Include compelling headlines

A headline typically summarizes the importance of the company's products. It's generally the first sentence that customers see when they visit the company's website. The marketing team can use compelling, catchy headlines to encourage customers to make purchases. Using easy-to-read fonts and placing the headlines in central locations helps to make the campaign memorable to customers, which optimizes the conversion rate.

Sample calculation of conversion rate

Here's a sample calculation of the conversion rate for a company's website:

The Greenway Company sells footwear. It wants to improve its marketing channels and strategies. To determine where it can improve, it calculates the overall conversion rate for its website last month. Its desired goal is for customers to purchase at least one pair of footwear after visiting the website. It uses analytical tools to review the website and determine the total number of visitors and conversions. The website had 20,000 visitors last month, and 2,000 people purchased footwear. This means that there were 2,000 conversions. The company inputs these figures in the conversion rate formula and calculates it as follows:

Total conversion rate = (Conversions / Total visitors) × 100

Total conversion rate = (2,000 / 20,000) × 100

Total conversion rate = (0.1) × 100

Total conversion rate = 10%

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