If you were to choose one metric to define your performance against your primary objective, which one would it be? Many people regard the conversion rate as the most fundamental metric for evaluating eCommerce efforts. But is it really enough on its own?
For an eCommerce website, “conversion rate” represents the percentage of visits to your website that result in purchases. For example, when you manage to turn 8 out of 25 visits into purchases, the conversion rate is 8/25, or 32%.
It can seem like an easy way to tell how you’re doing. But in this post, I’ll show some situations when conversion rate may not be the best way to determine how you’re doing, and you may have to seek out other metrics to see what’s really going on.
Problem 1: Website Improvements
Ecommerce websites often focus on displaying only the products they aim to sell. If you decide to create a dedicated section of your site where your visitors can stay informed about your industry or niche in a more general way, it’s likely that this change will increase the traffic to your website significantly and help educate users – both positive outcomes.
If an average customer used to make three visits to your site and one purchase over the course of four months (a 33 percent conversion rate), adding more content to the site might entice the average customer to visit more often – perhaps 15 times – but make the same number of purchases in the same time period (a 6.7% conversion rate). So, even though your online experience has improved and customers are visiting your site more often, your conversion rate is much lower because traffic has increased. This is an example of a good thing – more traffic – making your conversion rate look bad.
Of course, more traffic alone isn’t guaranteed to increase business, but it’s likely that over time more visits will result in additional or larger purchases, or prompt visitors to share your content with friends.
Problem 2: The Revenue Trap
The scenario that most clearly reveals the shortcomings of the conversion rate as a metric revolves around a central concern in eCommerce: money. Suppose we had 200 site visits yesterday and those people made 30 purchases, giving us a 15% conversion rate. Not bad.
Today, however, we received 120 visitors who made 22 purchases, resulting in an 18.33% conversion rate. We’re getting better… right?
If you’re focusing solely on conversion rate as a metric, today’s results probably have put a smile on your face and prompted you to say, “Conversion is going up, this is great!” But in reality, yesterday’s higher purchase volume brought in more revenue, assuming there is no change in external costs. This means your conversion rate can go up and up and your revenue can still decline.
Problem 3: Promotions
Sometimes, promotions can briefly increase your conversion rate by enticing visitors to buy sooner. At the same time, though, your average order volume (AOV) may go down due to visitors purchasing products at lower promotional prices, and this will eventually negatively influence overall sales. So be cautious about offering discounts to improve conversion rates only temporarily, without boosting overall income for your business in the long term.
These examples show that conversion rate alone will never tell you if things are really improving on your site. You need to take other parameters into consideration to truly understand your business, and always look at absolute revenue numbers alongside overall conversion rates.
An Alternative to Conversion Rate
If conversion rate optimization is a long-term strategy for your business, revenue per visit (RPV) can become an important metric for measuring your business performance. RPV is a valuable way to invest in engaging customers because it highlights how much money a visitor entering your shopping cart brings in with each visit, helping you predict revenue and make better budgeting decisions. As with most metrics, it is preferable to filter extreme values from totals so that you will not be using skewed data.
While conversion rate is important, we’ve seen that it isn’t the only way to measure success online. Analyzing revenue per visit is one useful way to break out of the conversion rate rut. What are some other metrics you’ve found to be vital to your eCommerce business?
