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Conversion rate: the most useless and dangerous metric you can use! (And what you should be using instead)

I got an email just last week from a research organization offering to share with me the average e-commerce conversion rates in different industries. As you can tell from the headline of this blog post, I don't think much of that metric. The evil side of me even thought about forwarding the email to the top competitors of Kalio's clients. If they optimized their site around beating the "industry standard" for conversion, Kalio clients could get a lot richer!

Conversion rate is the wrong metric to focus on for a couple of reasons:

  1. You can easily manipulate the metric by simply changing your traffic sources. Organic traffic doesn't convert that well... just un-optimize a few pages!
  2. You can't use a "good" conversion rate to eat or pay a vendor, employees, or yourself.  People will generally only accept money!

The goal of an e-commerce website is to produce revenue and profits. So, of course, it makes sense to track revenue, profits, gross margin, sales, and marketing costs, etc – all of the standard business metrics.

The problem with the business metrics is that tracking them doesn't really tell you what to work on in your business. How do you work on revenue? You know you want more... it's just not a very actionable metric.

Here are few metrics that are actionable and that lead to greater online revenue and profits:

  1. The number of "engaged" (i.e. non-bounce) visitors compared to the same period last year. For a store to grow over a long period of time, you must get more visitors into the store. You can only grow off of conversion rate increases for so long. I count only non-bounce visitors to weed out traffic that you never really had a chance with. You can work on optimizing your existing traffic sources to get more visitors and/or you can test new ways of getting shoppers to your site (retargeting ads, for example).
  2. The number of carts started each day compared to the same period last year. You can run a number of onsite tests designed to increase your cart start rate.
  3. The number of items added to carts each day. There are many upsell and cross-sell tests you can run to try and optimize this metric.
  4. The number of checkout starts each day. Again, if this number is increasing year over year, it's a good thing! You could look at the ratio of checkout starts to transactions... the problem, though, is that you'd actually be happier with a strategy that dramatically increased the number of checkouts, even if the completion ratio went down, and you got more transactions in total!
  5. The number of "delayed checkouts". These are shoppers who opened a cart, left the site, and later returned to complete the cart. You can test abandoned cart and ad re-targeting programs to get these shoppers back.
  6. The bottom line is ratios can be very dangerous, particularly to the bottom line. You're optimizing for something that you don't really care about, and may do so at the expense of revenue and profits!

There is one good use I've found for ratios, though. The next time you're at a conference and you have that awkward moment when a competitor comes over for a chat, just start talking about your new project to work on your website conversion rate. My evil side will be grinning.


Larry Kavanagh

Chief E-Commerce Strategist

 

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