Conversion Rate Formula and What It Means for Your Business

In this article…

• What is a Conversion Rate Formula?
• Conversion Rate Goals
• How to Calculate Conversion Rate
• Improving Conversion Rate
• The Perfect Conversion Rate
• What is a Lead?
• What is a Good Click-through Rate?
• Does Click-through Rate Matter?
• Low Click-through Rate is it a Bad Omen?
• High Click-Through Rate, a Bad Idea?
• How to Monitor Click-Through Rate
• How to Improve Click-through Rate

In the digital world, getting traffic to your site is not enough; converting traffic to leads is the primary aim of paid ads on social media platforms. Although it depends on the industry, getting a better click-through rate is what every business should aim for during their campaign.

Conversion rate helps you to know the number of people that visit your landing page and took a certain action, or responded to your call-to-action. Whether email marketing or pay-per-click, traffic’s just the beginning. The best results will come to those who how to find a conversion rate that pays off and is ideal for your industry.

The peculiarities of each industry will vary, and so will the average CTR, so what’s a good one for your situation? We’ll have to start with how conversion rates are calculated. Use this conversion rate formula guide to help improve your ad campaigns, discovering your next big opportunity to convert impressions to leads.

What Is a Conversation Rate Formula?

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Conversion rate is simply how often something is converting online, like a pay-per-click ad. It involves counting up the number of visitors to your landing page, ad, app, or site that perform the desired conversion, such as buying a product, watching a video, or signing up for an email series. Then, divide it by the total interactions.

For instance, if your landing page or ad gets 1,000 visits or views, and 50 take the main-purpose action on the ad, such as buying a product, the conversion rate is 50 divided by 1,000, or 0.05, and we can multiply by 100 for a clean percentage number. That gives us a 5% conversion rate, not bad for most industries, but again, the term could apply to a great variety of businesses where conversion rates need to be lower or higher for the campaign to succeed.

Professionals in the e-commerce arena understand the ideal conversion rates for their industry and the type of conversion and advertising medium they are using, finding ways to improve where at all possible.

Conversion Rate Goals

Conversion rates are going to vary, but online, the goals between different businesses are often the same. Some common conversion goals that you might track are:

• Decisions, such as re-upping from a free trial subscription
• Submission of information, such as through a survey
• Newsletter sign-up for email marketing
• Signing up for webinars or live calls
• Creating a new user account
• Downloading assets such as a free e-book
• Participation/voting in a contest or activity
• Engaging in some other way, such as commenting
• And, of course, buying whatever you sell!

Purchases or filled carts might be the ideal conversion goal to pursue for, say, an e-commerce site, while some content sites, like online news blogs or papers, may prefer a goal like email sign-ups. Think carefully about what actually helps your business the most right now, and track that as your primary target with a campaign. Regardless of the specific goals you have or may soon decide upon, we’ll describe your ideal target actions as leads from here on out.

What Is a Lead?

Concerning marketing, a lead is simply a person or entity that might patronize a business. It typically involves sales but doesn’t always mean a sale just happened. For instance, a literary agency could get a lead on a new client after a conversation between one of the agents and an unrepresented author. That isn’t a guaranteed contract, but it’s a potential one, making it valuable and something the business wants to happen more. That is a lead.

Sometimes leads are defined as some form of concrete contact information like phone numbers, social media handles, or email addresses. Let’s keep it simpler than that. For now, let’s just understand the word lead as a conversion goal.

How to Calculate Conversion Rate

Now that you know what leads and conversion rates mean, let’s recap on how the conversion rate works:

Conversion Rate = (total conversions / total number of visits or sessions) * 100

Let’s plug some real numbers in to test it out: if your site reaches 200,000 sessions in a month, and 20,000 orders were made, your conversions over total visits = (20,000/200,000), so 0.1. Multiply that by 100 and you have 10, so the conversion rate is 10%.

Also, if a visitor pays a visit to your site on two separate occasions, both count in the calculation. You can use Google Analytics to get insight into the pattern of traffic. However, that person is still counted as just one; good systems will use unique visitors as the metric when calculating conversion rates. Each visitor to the site or the landing page cannot be counted twice, three times, etc. by coming again.

Improving Conversion Rate

Conversion Rate Optimization, or CRO, is the process of improving various metrics associated with improving conversion rate. In the context of pay-per-click and other advertising venues, it would mean the process of getting more conversions per however many impressions.

The most reliable method to improve conversion rate is A/B testing. This testing method involves creating two audiences that are simultaneously experiencing your ad or site. You present group A with a particular version and present group B with another version, running both at the same time through the platform. Then, observe which one gets higher conversions, and stick with that one. Then you can create a different hypothetical change to split from, and so on.

Note that your A/B testing should take care of not just initial details like the font design, color, and layout. Mobile optimization, repeatedly testing ad copy, and having an attractive and easy-to-navigate site will make a bigger difference on your numbers at first. Then, you can focus on optimizing conversions further with subtle differences to a working ad, like color and font.

The Perfect Conversion Rate

Keep in mind, the ideal conversion rate for any business or venture will vary according to the industry, the medium in use, and the offer/how it’s presented. According to research, the average landing page conversion rate across major industries is 2.35%. The top 25 industries achieve a conversion rate of over 5.31%. For finance, the median conversion rate is 5%, however, the median conversion rate for eCommerce is less than 2%.

There is no perfect conversion rate, really, because anything can get a little better. It’s advisable to work towards the highest possible rate. Sometimes it’s best to move on to a different ad or page to improve, and some target conversion rate numbers may not be attainable, but aiming high and working wide helps to hit a better final result.

What Is a Good Click-through Rate?

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Click-through rate or CTR is a metric used to measure the number of clicks advertisers get on ads concerning impressions. PPC success depends on reaching a high click-through rate, in large part because CTR affects the quality score and the amount you pay when someone clicks on your ad.

Quality score, if you are unfamiliar, is a term for “Google’s rating of the overall user experience that your ads and landing pages provide when users search for your keyword(s).” The better the score, the less your average cost-per-click will be.

The average CTR varies depending on the funnel and advertising venue, the business, the quality of its ad creative and targeting, and other things, but for display and search ads across the internet, CTR averages out to 0.35%, and for Google ads 1.91%.

Across the marketing community, 4–5% is generally considered a good CTR for the average marketer to aim for. Meanwhile, Google search expectations have set a good CTR there at about 0.5%. With display ads, it’s double that at 1%.

The higher your click-through rate on Google ads, the lower your cost due to a better quality score, and the more juice you have going toward an organic search and SEO campaign. That said, clicks only mean anything if they get the conversions you want.

Does Click-through Rate Matter?

Absolutely, first, because more clicks are more traffic and opportunities to convert, but at the least because click-through rate directly influences your quality score and therefore lowers your cost to advertise. Search marketing platforms offer discounts or lower costs to incentivize ads with high relevance to the user, and getting a lot of clicks suggests that your ad is highly relevant.

Key Notes:

• A high click-through rate usually means a high-quality score.
• A high-quality score enables you to achieve, improve, and maintain ad positions at lower costs.
• High CTR suggests (but doesn’t guarantee) you are likely attracting the maximum number of people to your offer as possible.
• CTR helps your business to monitor key events related to your site and landing page and offer pointers.
• CTR can often be tracked by split testing different title tags, ad headlines, calls to action, and many more things to improve landing page traffic.
• Improving CTR improves your SEO efforts in connection to the performance of your paid ads.

Is Low Click-Through Rate a Bad Omen?

Decision-makers in a firm can be disappointed with paid online ads. If the main landing page of relevance has a low click-through rate, it acts as a frustrating stopgap to other, related SEO tasks and goals on the organic side of the marketing campaign. Any organization or marketer will benefit from seeing the click-through rate from that industrial perspective. Low CTR isn’t just an inevitability that should be tolerated, it’s money being thrown away in slowed progress and ineffective ad displays.

Every sector has an average CTR to try with your pages and ads, so compare your own numbers to those of the industry. The automotive market, for instance, boasts a 4% CTR, but the technology sector is just 2%.

If your click-through is not up to your industry average, you need to take a critical look at your marketing strategy and re-assess.

To identify where the problem is, your company may need to look at:

• Title tags
• Landing pages for ads
• The product and offer
• Target audiences
• Keywords used
• Anything else that you think might help.

Updating and improving on these will help a business to achieve a higher CTR.

High Click-Through Rate, a Bad Idea?

A high click-through rate is a superb achievement, but it may not be what you want all the time. An inflated CTR can expose many underlying issues with your paid strategy. For instance, your business may target keywords that may be related to your ads, but may not drive the audience you target to your site. In a case like this, where your marketing is no longer truly relevant, your firm pays hard-earned dollars for clicks and users that are not useful to your company’s long-term goals. For this reason, it’s important to also consider the value earned per click.

Maximizing CTR can indeed do a lot of good things, but it doesn’t mean you should chase those benefits if you are not receiving leads that offer the most value and make your business a success.

That you have a high click-through rate that matches your industry is not enough; take time to look at the company’s campaign performance at the broader level, looking at the value of your customers and the value of your marketing to those customers. Ask your sales team if the leads your ads generate are beneficial to your company and offer growth on a long-term basis.

Where to Monitor Click-Through Rate

CTR applies to many types of campaigns in the digital world. Let’s check few areas where you can monitor CTR:

• Pay-Per-Click Ads: As we noted, CTR affects many facets of your pay-per-click campaign, especially when it comes to concepts like quality score. Quality score combined with a high CTR from valuable traffic will feed itself and give you a strong return.
• Email Marketing: In email marketing, CTR refers to the number of users who click a link in your email. Email subscription is one of the most valuable marketing tools in many online ventures, and improving CTR there can mean squeezing even more value out of serving those subscribers.
• Social Media Marketing: Social organic or social PPC ads both should be tracked for their CTR and total impressions. Keep in mind that each social media platform has its own peculiar advertising system. Certain types of factors in an ad might be more important to raising CTR or visibility, depending on the site. Research the social media platform to see how their advertising programs work before using social media ads for your business.

How to Improve Click-through Rate

If you take PPC ads and organic search marketing seriously and look to improve several simultaneously running campaigns, it’s time to make as many split tests as possible. Improving average CTR for display ads, across a multi-adventure can help your company get a better conversion rate and earn more revenue, get more attention, or get greater participation online. Here are some tips that may help you improve your company’s click-through rate.

Double Check the Audience

The primary aim of your campaign is to target the right type of person. If you have a low CTR, you need to re-evaluate your target audience, and whether you might want to target different people, or target them differently.

If you target customers based on just factors, like age and gender, go deeper, find some more specific layers of character. Create an ideal customer in your mind regarding what kind of place they live in, or where in general, their activities, interests, why they would need your business or website, etc. This will enable you to focus on a certain group of people because no ad is for everybody.

Your target audience may be from a different socioeconomic level, education level, marital status, or income level than you thought, despite doing past research. It will help you to ask real customers and leads, as well, what brought them to your site or business.

Create Quality Content

The internet runs on content, and an emphasis on quality will help your business stand above competitors who spam irrelevant or insubstantial content. It doesn’t matter if it’s email marketing or social media ads, content quality determines how much people will interact with your campaign.

If you want to raise clicks on your ads, creating good content is mandatory. Everywhere that content technically exists, such as in your emails, it should be effectively warming customers up to you and seducing them to read, click, buy, and more. If the content is not interesting and fun, people will not engage with it and likely not with the business that sent or posted it.

Make sure that the content applies to your audience, and pay attention to their needs. That is often more important than making the most content, or the biggest content pieces. Most ads that aren’t search-related are discovery-related, meaning that they are competing on sites like social media platforms, as users scroll through dozens of other pieces of content and ads. Strong content will catch more people’s eyes in that sea of competition.

Employ Powerful CTAs

Employing a Call-to-Action is important when you want your audience to actually perform a conversion and become a lead. Even before that, though, your ads should each have a strong CTA, compelling your audience to take the next step by clicking on it. For an effective campaign, test multiple CTAs and aim for the strongest one possible.

It helps to avoid generic terms like click or check out. Tell your audience what will happen if they click the link or button. Will they learn more? Claim a discount? Be specific and concise.

Instead of saying “click right here,” it’s better to say, “Download your free copy of the e-book here.” It is straightforward to let your audience know what they are getting, and how.

Use Testing and Research Tools

With AdWords and similar platforms, extensions are available to improve your company ads, allowing them to do new things or for you to develop more specific and complex insights. For instance, some add reviews or a live call button to your ads.

Test Your Content

Almost always, when you create content for your digital campaign, you are going to have to test it for a while before it works; a little while, if you do it right, but still a while. It is possible to compose an email or create an ad that you assume works for your audience, to get your branding completely right on the first try, but it’s incredibly rare.

If you desire to create amazing content for your business, conduct tests, like A/B testing your ads and landing pages. Change only one thing at a time per segment of the campaign. This will help you gradually find the right balance for everything you do, and you’ll get full confidence that features like typography, image, and campaign CTAs are all as good as they can be, all putting in the work to help you succeed. Remember: it is best to test only one element at a time, to give clarity on whether that one change works or not.

In the end, knowing a conversion rate formula is just the beginning. The best way to increase your clicks and conversions, get more leads, and grow optimally is to understand the target audience and what they need. This will help you tailor your campaign to their greatest needs or wants.

It’s not just about lots of impressions, but the ability to draw people in with content that delivers on its promise, inspiring them to eventually take the desired decision that matters to you, whether to sign up, buy, or anything else. Optimizing your campaign is the key to having a desirable conversion rate and a better CTR.