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E-business Optimization

Understanding Order Conversion Rate - Part One

by Chris L. on 1/25/2011 2:00:17 PM MST

Whenever the subject of conversion rate is discussed, most are quick to mistakenly consider the metric as a reflection of the shopping cart or check out process.  Fact is, most variables that influence the conversion rate are higher up in the funnel than most people realize.  In this multi-part series, we’ll dissect what conversion really is, the factors that influence it, and ultimately suggestions on how to improve it.

Part I – Three Primary Steps to Order Conversion

Every interaction your potential customer has with your Web site will factor into the overall conversion rate.  The method in which customers arrive to your site, the entry page and a myriad of other variables influence the decision making process and ultimately their propensity to buy.   

In an attempt to simplify measuring the conversion funnel, we have analyzed a large sample of shopping cart data for the time period from January, 2008 through December, 2010.  Included in this sample where a wide variety of products, promotions, seasonal specials and other factors that may have an influence on the rate of conversion.   What we found was a relative uniformity in the slope of conversion funnel.  Granted, certain types of products may, on average, convert at a higher rate (for example, specialty coffee will convert at a higher rate than office furniture due to the competitiveness in the market).  However, the components that lead to the conversion remained relatively constant.

In the end, we boiled conversion into three key steps in the funnel.  They are,

  1. 1) Engagement – the opposite of bounce rate.  This metric shows us how often a visitor looks at more than one page on your web site.  The assumption being that if they look at more than one page, they have at least engaged with your brand, offer, call-to-action and/or products and seek more information.
  2.  2) Decision – the percentage of visitors who put a product into the shopping cart.   This seemingly innocuous metric is perhaps the biggest driver of order conversion rate and has perhaps the most variables associated with it.
  3. 3) Completion – the percentage of visitors who complete an order after placing item(s) in the cart.  This is the opposite of “shopping cart abandonment”.

There has been much discussion over the past several years about what the “average conversion rate” is for ecommerce.   Aside from online florists and major brands that spend oodles of marketing dollars on direct marketing, TV and radio, the consensus seems to be that an average conversion rate is in the 2-3% range.  Our statistical model and analysis agrees with this range.  The key to going from “average” to what we would call a “healthly” conversion rate of 2.8-3.5 percent lies in the success of all three steps of the funnel.  If any step under performs, the overall conversion will degrade, exponentially. 

The chart below shows the effects of minor fluctuations in three steps vs. order conversion rate.  You’ll see the smallest of change higher up in the funnel can lead to massive changes in conversion rate and online revenue.

Interestingly enough, it is possible to have one step lag while another steps excels, thus masking a potential problem in the overall order conversion funnel.

For example, an extremely attractive web site may have a high engagement rate. However, when the visitor views a product they realize the price is too high and tend not put anything in the shopping cart.   By analyzing these two steps independently we can identify the problem at the “decision” step and make corrections to dramatically improve conversion rate on a site that may otherwise look to be performing at an acceptable level. 

In subsequent parts of this series we’ll delve into what factors and variables affect each step and ultimately how to improve performance of each.  In addition, we’ll uncover how different types of traffic may convert vs. others in order to make the most of an ebusiness marketing buget.