Sales Conversion

In marketing a conversion occurs when a prospective customer takes the marketer's intended action. If the prospect has visited a marketer's web site, the conversion action might be making an online purchase, or submitting a form to request additional information. The conversion rate is the percentage of visitors who take the conversion action.

In Internet marketing the conversion rate is the percentage of unique visitors who take a desired action upon visiting the website. The desired action may be submitting a sales lead, making a purchase, viewing a key page of the site, downloading a whitepaper, or some other measureable action.

For web sites that seek to generate offline responses, for example telephone calls or foot traffic to a store, measuring conversions can be difficult. In order to measure online conversions a marketer can use web analytics software. Some online marketing companies, such as Verizon, offer tracking programs tied to a specific phone number that the business registers for receiving web site inquiries.

Calculating Conversion Rates

The economics of an online marketing program depend on the cost-per-acquisition (CPA) of a new client or prospect. With pay per click advertising, the CPA is proportional to the Cost Per Click (CPC) for getting traffic to the site divided by the conversion rate.

By increasing your conversion rate, a marketer can lower the cost per acquisition without changing the cost paid for traffic. Even a small increase in conversion rate can have a dramatic profit impact.

For example: a program has a 25% return on investment (ROI). For every $1.00 spent on buying traffic, $0.25 in profit is created.

Value - $1.25
Cost - $1.00
Profit - $0.25

Assuming an increase in conversion rate of 20%, what would be the impact on profits?

Value - $1.50 ($1.25 x 120%)
Cost - $1.00 (Unchanged - same marketing activities)
Profit - $0.50

In this example a 20% increase in conversion rate has doubled profits.

References: Wikipedia
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