What Your Conversion Rate Is, and Why It Matters

If you have heard the term conversion rate, and you are wondering what on earth it is, what it means, and why you should be conce
ed about it, do not worry. Conversion rate is another one of those complex business terms that is actually used to describe something quite simple.

In a nutshell, your conversion rate is the number or percentage of all your potential clients who decide to buy from you. If you own a retail store, it would mean the number of people who enter your store who actually make a purchase, and if you have an online business, it would be the percentage of your unique traffic that become your customers.

Now, you might be wondering why your conversion rate matters. After all, who cares what percentage of people you could be selling to you are, as long as you are making money, right?

The problem comes in when you look at the business term ‘cost of sales.’ This term simply describes the fact that every sale you make costs you money – in terms of marketing, staff, infrastructure, overheads, and other business related expenses. Most of those expenses will not change much, no matter what your turnover in your business is, but if your conversion rate increases, your cost of sales will decrease, and your profits per sale will rise.

Let us look at it as a practical example though.

Let us say that your business costs you $1000 to run every month, in terms of overheads and other expenses. Every month, you sell, on average, $10 000 worth of products or services, spread over 100 clients and you sell to 25% of the people that enter your store, or visit your website. That means that each sale costs you $10, each sale brings in an average of $100, and you make $90 profit off each sale.

Now let us leave everything else the same, but increase your conversion rate by 5%, to 30% of all the customers you have in your store or on your website.

The cost to run your business would stay $1000 per month, buy you would be selling to 120 clients, bringing in $12 000 every month. Your cost of sale will have dropped to $8.33 per sale, and you would be making $91.67 profit on each sale, or an additional $200.40 every month.

Notice how your overheads and expenses have not changed, and there has not been an increase in the number of potential customers you have, all that you have done is increase the number of people who are buying from you, and that has had an impact on your profits.

The simple truth is that sales, marketing, and advertising costs money, and that the more people who actually buy from you as a result of your sales, marketing and advertising efforts, and the more money you will be making from your business.

There are several ways you can increase your conversion rate, without increasing your advertising or marketing costs.

You could try changing the level of service that your customers get from your staff or on your website. You could consider offering a money back guarantee, to create a sense of security, or you could try offering slightly different products or services. You might even try a slight reduction in your price – remember that lower priced goods generally sell in volumes, and while you should never compete on price alone, there is often more money to be made off lots of smaller sales than a few big ones.

Whatever you do decide to do, it’s clear that increasing your conversion rate, if everything else remains equal, will increase both your business’s turnover and profits, and that’s exactly what helps a small business to grow.

So spend some time thinking about how you can entice more people to buy from you, and how you can increase your conversion rate. You should see your profits increase quite dramatically! It is the difference between working harder, and working smarter, and since there is only so much work you can put into your business on any given day, it might just be the turning point for you and your business.