Consultancy
Digital Strategy
The Tribe
What we will cover
How to work out conversion rate: the basics
Whatever your business goals, the basic idea behind how to work out conversion rate is calculating the percentage of people that do take an action out of those that could take an action.
While conversion rate usually looks at sales made or leads generated, the concept can be used for any desired goal (brochure downloads, webinar sign-ups, competition entries, etc.)
Either way, the first step is working out where you’re going to get your data from.
Now, if you are running an e-commerce store then you will likely be able to directly collect traffic and sales data from the platform dashboard. However, e-commerce stores require a bit more up front money and time investment (payment gateways, legal documents, inventory set up, etc.) than other websites.
For the purposes of this article, we will look at a standard business website. We will first look at how to work out conversion rate for leads and then move on to calculating lead-to-sale conversion rate.
Calculating your visits to leads conversion rate
One conversion rate you are probably interested in is the percentage of visitors to your website that make an enquiry or become a lead.
First, you will need to collect your traffic data: the number of people visiting your website. This can be pulled directly from Google Analytics.
Your enquiries or leads data will come from a different source depending on how you want to set this up. For example, you could:
- Monitor the number of people clicking ‘Submit’ on a contact form, using Google Tag Manager.
- Count the number of email enquiries received through the back end of your website.
- Record the number of phone calls you get by setting up a dedicated phone number connected to your website. This is known as a VoIP line, and we can set this up for free for Tribe members (more on that later).
Once you have set this up, you can calculate your conversion rate using this simple formula:
Conversion rate (%) = number of enquiries or leads/number of visitors x 100
For example, if you receive 10 form submissions and 100 visitors a day, your conversion rate is 10/100 x 100 = 10%
By the way, this is sometimes referred to as a micro-conversion rate because it doesn’t lead directly to a sale.
How to work out conversion rate from leads to sales
Macro-conversion rates involve your major conversion goal, which for most businesses will be a hard sale.
You would use a similar conversion rate calculation, as follows:
Conversion rate (%) = number of sales/number of enquiries or leads x 100
Many businesses we work with actually convert their sales offline, but we can still get an estimate of their conversion rate by simply asking them how many sales do they tend to get for every ten quotations. If the answer is seven, their estimated conversion rate is 7/10 x 100 = 70%
We can then monitor their average monthly enquiries to get a rough sales figure. So, if they provide 50 quotes a month, they can expect to make 50 x 70% = 35 sales.
Using conversion rate to calculate turnover and set your marketing budget
Once you have an idea of conversion rate and sales numbers, you can move on to turnover projections.
We encourage our clients to keep a four week record of sales so they can calculate an average sales value.
A simple spreadsheet should be adequate for this purpose, and we have designed one which you can download for free here:
Once you have your average sales value, you can multiply this by your monthly sales to get an expected turnover value. Sticking with the example above, if the client made an average of £1,000 per sale, they can expect to make £1,000 x 35 = £35,000 per month or £420,000 per year.
Now, let’s say that your marketing goal is to increase your conversion rate to 80%. Success would mean 50 x 80% = 40 sales, equating to £480,000 per year turnover.
From this calculation, you can then decide what you are willing to spend on marketing to achieve that £60,000 annual uplift. For example, you might be prepared to spend 10% (£6,000) to push up that conversion rate.
Take out the guesswork with the Vu Tribe
Hopefully you can see how collecting real data and making accurate calculations (or evidence-based estimations) can lead to smarter marketing decisions.
Better still, Vu Online can take all of the donkey work away by setting up your analytics, calculating your conversion rates and producing regular, easy to understand progress reports. We will even pay for a VoIP line so you can start tracking phone calls straight away.
For more information, check out our Tribe digital marketing subscription service.
Do you know anyone who may be interested in this project?
Click to share:
