In an article today about the Australian and New Zealand Online retailer, The Iconic, I was struck by the following in a sentence; with about 150,000 daily visits to the website and more than 1000 orders a day …. I guess we all notice various different things when reading but this immediately sparked my interest regarding the conversion rate (purchasing probability) of people visiting The Iconic website versus the number buying (my MBA dissertation was Market Entry Strategies of Online Retailers). Of course the conversion rate of 1 out of every 150 visitors placing an order is hardly scientific when the numbers quoted in the article aren’t exact but it does give some indication as to the conversion rate that The Iconic may be realising.
About Internet Conversion Rates
There are all sorts of measures and important analytics when it comes to Websites. The three most common conversion rates that I get asked about are
- Online Advertising conversion rates (such as Google Adwords e.g. the number of times an advert is shown versus how often it is clicked).
- Landing Page conversion rates (the proportion of times a specific action is undertaken on a Page e.g. how often someone subscribes to a newsletter).
- eCommerce conversion rates (specifically the number of orders compared to the number of visitors).
Conversion Rates versus Cost of Acquisition
A number of years back I made a bit of money through playing the conversion rate numbers ‘game’. Here is briefly how it worked …
I signed up as an amazon.com affiliate and setup a Website to display amazon.com items for sale. I then watched for amazon.com special offers and as soon as I noticed a great deal I added the product to my Website with a link to amazon.com (so that I was paid a commission if the visitor to my Site clicked through to amazon.com and then purchased). I then immdiately setup an advertisement using Google Adwords.
This whole scheme relied on understanding the cost of advertising on Google, the proportion of people that clicked the adverts that would eventually buy from amazon.com and the amount of money I’d earn from amazon.com (ultimately it was only possible to make money on higher valued consumer products such as televisions). Margins were incredibly small so sales needed to be high.
Ultimately, for this scheme to work, the cost of customer acquisition had to be low (the higher the conversion rate of Google adverts meant that the cost of adverts was lowered), and the conversion rate of people visiting my Website that clicked through to amazon.com and ultimately purchased had to be high. The ‘moral of the story’ here is that conversion rates are incredibly important just as financial ratios are important in understanding the viability of a business.
What to expect with ecommerce Conversion Rates
1000 orders from 150,000 visits equates to a 0.67% conversion rate of visitors to orders which is relatively low in my experience (but 150,000 daily visits is high so the conversion rate for The Iconic is sure to improve with time); established Online retailers get a conversion rate of, on average, 1% to 3%. The conversion rates show how tough entering the Online retailing market can be; to get a large number of visitors is very time consuming and usually costs alot of money. Without visitors, you aren’t going to get sales. As noted by Joachim Reinhardt of Netrada, the three key areas that are crucial to run a successful Online channel are online traffic generation, maintaining high conversion rates and managing fulfilment and returns.
Fortunately the cost of setting up an Online shop is very low so the initial capital investment for your ecommerce store setup doesn’t need to be high.