Conversion Rates: How High Is Up?

conversion_rate.jpgIn my role at Intuit colleagues are always asking me what a “good” conversion rate is, what the “average” is, or what ours “should be. If you want people to take action on your data insights, you have to put it within the right context, and the fact is that many business folks don’t have the right context for their conversion rate. Recently I caught wind that some articles were floating around my company and they were shedding doubt on the old maxim that the average conversion rates for websites are in the 2-3% range. I decided to dig a bit deeper and share my point-of-view on this topic.

Because both articles present the question of average conversion rates as a “debate” but also list out sites with conversion rates in the 10-15% range, the casual reader may be tempted to come to some spurious conclusions. So let’s be clear: conversion rates ARE in the 2-3% range.

Here is the article in ClickZ by the well-respected Bryan Eisenberg. Bryan’s article is basically a response to a post by “Dr. Pete”. Dr. Pete asserts that 2-3% rate is a “myth” and that the data sources for this factoid are mysterious and therefore untrustworthy as a benchmark. He sets out a conjecture that when you factor in rates for sites that aren’t even savvy enough to measure the rate, it may be much lower than 2-3%.

Bryan goes the other way, saying that whatever they are, conversion rates should be much higher than 2-3% because most sites waste money bringing in unqualified traffic. His logic: sharpening your target audience lowers your overall traffic, but raises the conversion rate. And while that math is unassailable, I would heavily caution Executives from using it to drive business strategy.

Are the Data Sources Mysterious?
Dr. Pete says tracking down the source of the 2-3% figure is like “Bigfoot”. Bryan admits the sources are published and clearly out there. And it’s not just once source that has data around the 2-3% — it’s many, and year after year. Shop.org is one as he mentions, and I’d add InternetRetailer to the list. They have company-by-company estimate.

In addition there is FireClick and Coremetrics — which are very close to one another on conversion (pulled from individual reports, conversion rate was 2.7% and 3.1% respectively). And indeed they are calculated precisely the way many sites measure conversion — both are “orders/sessions” . These are not “estimates” but rather aggregated from real-time clickstream systems from paying clients. Dr. Pete conjectures that Google won’t publish their data, but in fact they do — inside GA you can get benchmarks as well.
From all this, we are to conclude that the data sources are real, verifiable, and triangulate around the same number. Of course if you were to include every site, no matter how small or amateur, conversion rates may be lower. But there seems little use in this as a benchmark for any serious company of any size.

How High Is “Up”?
OK, so the average is indeed 2-3%. But what are we to make of the list Bryan presents of websites with conversion rates above 10%? Should this be the “gold standard”? Does this represent “world-class”? Is anything lower than this a reason for concern?

Every statistic has a distribution of values, and though the mean score is in the 2-3% range, there are outliers on the right tail of the distribution. This is indeed that list of outliers. So, what can we learn from it?

Well let’s take a closer look at the list.

Do you see anything unusual? How about the fact that three of the 10 top sites are online florists?

Do flower sales make up anywhere close to 30% of all ecommerce sales? Of course not. Nowhere close.

So what’s more likely… By random chance these three companies all happen to have hired the most brilliant online marketers and each independently figured out the secrets to website experience design? Or is it simply that consumers of flower arrangements are very motivated buyers, only shopping at time-limited events. They don’t simply browse flowers “to find out what’s new in the floral world”.

Thus we have a much smaller conversion denominator and therefore a higher conversion rate.

Also, shoppers may do less comparison shopping because the bouquets are often fulfilled by the same local florists in the end anyway for a product the consumer himself does not use.

Last point on flower sites, they have the PERFECT setup for email marketing. They know EXACTLY when you need flower for national events (e..g, Valentine’s Day, Secretaries Day) and once you buy flowers once for your wife’s birthday, they know your personal events as well!

It’s brilliant really: they know what you’re buying of course, but because you select an occasion, select a card, and fill it out, they know exactly what you’re buying it FOR (which is what a lot of ecommerce sites are missing). And lucky them, it re-occurs same date every year.

Then they can send out highly TARGETED and most importantly highly TIMELY email messages. That’s why their upstream traffic has a higher concentration of email services than almost any other site you’ll find. Here’s the upstream traffic for one the flower sites listed above.

Who else is on the list?

Tickets.com is an exclusive seller of tickets for a given event — largely sporting events. Exclusivity is a pretty cherry deal. They don’t do the marketing of the event, they do the checkout piece. So you’re only on their site when you’ve already decided you want to go that game, and they are happy to take your money.

It’s like a pure shopping cart without all those messy marketing pages. I’m a bit surprised their conversion rate isn’t even higher. Upstream traffic to tickets.com uncovers who are some of the websites that are actually doing the marketing, and “absorbing” all those unconverting visitors.

Next on the list of top sites, you’ve got paper catalog companies and TV shopping networks: QVC, Land’s End, Coldwatercreek.

These are all what I’d call “high-cost, split-distribution” industries. Their higher website conversion rate hides their high overall marketing costs. In sum, few people would buy their products if they didn’t aggressively (and expensively) get in front of people on a very regular basis. The bulk of the “wasted” prospects shows up in another venue — TV or print. Somewhat akin to tickets.com where the “wasted” prospects show up on Boston Red Sox’ website.

What if you had to build and run a TV studio and buy up an entire TV network running 24/7 nationwide just to attract visitors to your website or phone lines? What if you had to produce, print, and mail $20 Million worth of 200-page color catalogs every month just to keep your phone and website traffic humming? In both cases it is largely the “other” venue that is absorbing the unconverted prospects, and the website plays largely a fulfillment role.

As for eBay and Amazon.com — they’re just awesome businesses and I’ll leave out the analysis on why they earned their spot amongst this list. If I had to bet, I’d guess OfficeDepot.com ranks because they are a truly insane (paper) direct marketer (I receive two mailers a month from OfficeDepot) selling highly exhaustible products like paper, pens, and toner which must be replaced frequently.

In conclusion, it very much matters what your business model and customer acquisition strategy are before you can answer “how high is up?” for conversion rate. Sometimes a great sounding number in one channel hides a more somber number in another. In other cases there is a strong forcing factor. Always present your metrics in the context of your stated business strategy. You’ll have better success in leading your management away from “shiny objects” (like ProFlowers.com conversion rate) and towards your true growth opportunities.

(Article originally published to IQ Workforce Web Analytics Rockstars blog. Also commented on Internet Marketing blog.)

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