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Why obsessing over conversion rate is a waste of time

Paras Chopra
Paras Chopra
Founder and Chairman of Wingify.

Red Gate software runs an annual challenge where they buy a small software company for a million dollars. They list a number of requirements that the software company must fulfill. One of the requirements that stood out was about conversion rate. They said:

If you’re selling your product then it must have at least a 10% conversion rate.

This requirement actually made me say “Wow, that’s insane”. Let me elaborate why.

What’s wrong with worrying about conversion rate?

cartoon illustrating a general day in a marketer's life

Conversion rate is percentage of visitors who actually bought something on your website. Let’s imagine there are two websites: one sells product X with 5% conversion rate and the other one sells product Y with 10% conversion rate. Now, here is a million dollar question:

Is 10% conversion rate of product Y better than 5% conversion rate of product X?

It’s foolish to even begin answering above question without considering following factors:

  • How much do these products sell for? If product X sells for 10 times the price of product Y, clearly average sales price of product X is much better in spite of having 5% conversion rate.
  • What is the total traffic on the websites? If product X gets 10,000 visitors a day while product Y only gets 100 visitors, guess which one is minting more money?
  • What is the lifetime value of customers? This factor is the biggest reason why comparing conversion rate of different websites/products is a useless exercise. Let’s imagine that product X and Y sell for similar price and get similar amount of traffic. Does that make product Y more valuable (since it has higher conversion rate)? Not necessarily. What if company that makes product X has expert salesman that up-sell and cross-sell tremendously and hence derive much more money from a customer in his lifetime.

In nutshell, conversion rate by itself doesn’t tell much (unless you have extra information like traffic, sales price, lifetime value, traffic mix, etc.) So a website with 1% conversion rate may not necessarily be worse as compared to a website with 10% conversion rate. Conversion rate in isolation is a useless metric.

Increase (or decrease) in conversion rate: that’s what should keep you worried

Conversion rates are not entirely useless. In fact, they are very useful when seen on a temporal scale. In other words:

If your conversion rate is 5% today, aim should be to increase it to 7% (using A/B testing, etc,) or at least not let it fall to 3%.

So, comparing conversion rate over time makes a lot of sense (but for the same website). Unless you have a lot of other information about your competitors, you should NOT obsess over comparing your conversion rate to their conversion rate and whether it is lower/higher. Instead, you should obsess on how you can increase your conversion rate (since that’s one of the easiest things to make your bank balance fatter).

Note: if you go through our library of A/B testing case studies, you will note that we always talk about increase in conversion rate and not conversion rate per se.

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