Sales Conversion Rate Impact on Marketing and Sales Forecasting
"Is my website doing any good? Should I make more sales calls? How can I get more sales?" These are questions that can keep small business owners up at night! But there's a key metric that can help find answers to these questions: sales conversion rate. Basically, this metric compares marketing activities and customer traffic to actual sales made. While it may not always be an exact science, it can provide insight on trends.
How is Sales Conversion Rate Calculated?
In theory, calculation of sales conversion rate is really quite simple:
Number of Sales Made ÷ Number of Website Visits, Sales Calls, etc. = Sales Conversion Rate
For example, say that a company has 1,000 ecommerce website visits per month. During that month, they complete 2 sales on the site. Their monthly conversion rate would be:
2 ÷ 1,000 = 0.2%
Watching this metric over an extended period of time will reveal an average conversion rate, as well as show trends such as sales slumps and peaks.
One of the primary uses of sales conversion rate is to come up with a sales forecast based on traffic trends and marketing activities. In the above example, if this conversion rate is consistent over time, the company could use the previous year's website traffic figures to forecast sales for the coming year by multiplying the conversion rate by the expected traffic to project sales revenues. Say that the company has an average of 1,000 website visits per month (12,000 annually) and the average sale is $100. They could forecast next year's total sales as follows:
0.2% Conversion Rate X 12,000 Website Visits X $100 Average Sale = $2,400 Sales Revenue Forecast
Challenges to Calculating Sales Conversion Rate
The sales conversion calculation shown above is easy. Selecting the numbers to use for making the calculation can be difficult.
Number of sales made is usually an easy statistic to obtain. However, the company may wish to isolate sales of particular products or services during the reporting period. That would require additional segmenting of sales data.
The question of what marketing efforts to tie to sales data is an even bigger challenge. Most companies, even small ones, employ a variety of marketing and sales efforts. And the actual sale may be a result of multiple "touches" with the customer both offline and online.
However, lumping all marketing activity numbers (website traffic promotion, emails sent, sales calls made, etc.) into one number is not recommended! Doing so can skew the results since:
- Not all marketing activities have the same volume. For example, website traffic or email marketing campaigns can often be measured in the thousands of impressions. But in-person sales calls might be measured in hundreds or less, sometimes even in single digits.
- Not all marketing activities have the same intensity or impact. In person sales calls can have a huge effect on whether a sale closes or not. Whereas website visitors may spend mere seconds on any site.
- Individual activities cannot be directly correlated to changes in sales. For example, if a company reduces their activities to promote website traffic (such as SEO or inbound marketing), they'll want to know whether this results in a decrease in website visits. Lumping all activities together can mask success or failure of individual efforts.
So what can be done to achieve more accurate conversion statistics, forecasts and marketing plan adjustments?
- Track each individual marketing activity. Know exactly how many sales calls, emails, blog posts, etc. were done and compare that to results achieved. This will reveal which efforts could be having a positive impact.
- Track even "uncountable" efforts. Some efforts, such as including target keywords for SEO in blog posts, are less "countable" than others, but may still bring about positive results. Google search ranking would be an example. Noting the dates when emphasis on integrating keywords was started can help track progress.
- Determine exactly what results are desired. Each step along the sales funnel can have unique results. For example, in addition to actual completed sales, successful marketing results can be the number of email subscribers. Other desired outcomes could include placement in web search results (i.e. first page of Google).
- Be consistent in measuring. Don't measure results based on website traffic one month and then on sales calls the next.
Ecommerce Conversion Rate Issues
Looking at the first example, a company who strictly markets online with a single-page sales website can pretty easily measure the website conversion rate by comparing the number of sales to the number of visits to that site.
But companies that have both an online and offline presence will have to decide whether to include only sales made online or include offline sales, too. Why might they want to include both? Today, many customers do Internet research prior to buying, but may ultimately purchase the product or service in a brick-and-mortar location. Sometimes it might be the reverse: A customer may wander into a brick-and-mortar location, but may actually purchase the product or service through a website.
Measurement gets even messier when blogs and social media are involved! Did the customer buy because they saw the blog or connected on social media? Or did the customer do a Google Internet search first and then run across the blog which led to the shopping site?
Google Analytics (and other similar tools) to the rescue! Any company that is on the web to do business needs to track website analytics. Traffic sources can provide a wealth of data on what's working. For example, if the company's website has a high organic search figure, their SEO and keyword optimization efforts are working well. Sources such as social media and blogs are also reported, giving clues as to the success of social networking efforts.
Note: Ecommerce conversion rates can be very low, even in the low single or fractional digits, and still be a success. This is just the nature of doing business on the web. Don't be discouraged at super low numbers! Watch for trends of even small proportions.
Do You Monitor Your Website Conversion Rate?
My Sales Conversion Odyssey
I had such high hopes for my web sales strategy! After years of consultative in-person selling and seeing eroding profit margins, I was trying to convert more of my offline sales to online. My plan:
Blog → Shopsite → Sales
Here's what how that plan ended up:
Blog → Shopsite (maybe)
Ack! What happened? My Google analytics started to tell the tale.
People were reading and enjoying my blog, even sharing it on social media. But in the previous year, only about 22 percent of the traffic to one shopsite was from the blogs. Even more astounding was that just under 8 percent of the traffic for the shopsite with the highest sales was from the blogs. On that high converting site, roughly about 59 percent of that traffic was organic and 13 percent direct (people typing in the website domain). Yep, my SEO efforts are working on that one! And these trends are holding steady over time.
An even more revealing web conversion stat was that only 18 percent of those actual sales were being completed directly on the sites, another trend that's holding steady. What was happening was that customers, both new and old, were connecting with me via phone or email to get their orders done. That could signal changes are needed to the ecommerce sites. But with a complex, advanced ecommerce engine that is fueled by my suppliers, that is an astronomically expensive task. No thanks! Plus, I got the impression that many of these customers just wanted to talk with me, especially the case for existing customers.
In an effort to retain these existing customers, I decided to do a monthly email. Those weren't getting much traction. Then I decided to experiment with direct mail postcards a few times a year. That's the ticket for this crowd! Whatever works.
I had to come to grips that I was blogging a blue streak, but it wasn't translating into sales. What to do with the significant traffic I was getting on the blogs?
The traffic from the blogs could have become customers by: 1) Buying my books; 2) Creating traffic for advertising revenues; and, 3) Buying promotional products sometime in the future. To gather them into the top of my sales funnel, I offered a free ebook for subscribing to the blog via email. That resulted in a greater than 80 percent increase in subscriptions in one year. I also reduced the number of blog posts published and "recycled" previously published material since I had many new subscribers coming on board that hadn't seen any of it yet.
But that's not the end of the story. Through continuous monitoring of Google Analytics, email marketing and sales results, I realized that my blog was costing me more in terms of dollars, time and effort than I was making in profit. Plus, about 25 percent of the subscribers would cancel their blog subscription after getting the free ebook. Book sales were okay, but not stellar. And ad revenues remained flat. Promotional products online sales? Well, they were mostly coming from search engines or existing customers, not the blog.
So I closed that blog and moved my blogging to a hosted platform (HubPages) with advertising revenue sharing. As of this update, this has strategy has been seeing positive results in improving ad revenues and acceptable books sales, as well as reduced blogging costs.
Building an email list continues to be a challenge. Email subscriptions coming from the ecommerce sites are dramatically low compared to the blog. However, my email lists are now being fueled by new customers obtained from search engine traffic and networking, resulting in lower unsubscribe rates. A quality versus quantity issue for sure.
Running a business, offline or online, must be run by the numbers. Otherwise, you're selling blind.— Heidi Thorne
Disclaimer: The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.
© 2013 Heidi Thorne