Friday, March 22, 2013

Categories: Commerce Platform

Five reasons why conversion rate is not the king of eCommerce KPIs (or is it?)

Conversion rate is considered to be the key metric for many, if not most, retailers. It is often the primary metric discussed at weekly trading meetings and used to measure success or failure. But I ask ‘should it really be the be-all, end-all metric that every retailer obsesses over?’

I could easily launch into a rant about this, but let’s start with five reasons why online retail businesses need to rethink their maniacal focus on conversion rate.

  1. Conversion is contextual

Conversion rate is influenced by myriad factors, yet it is almost always looked at in isolation. Is it up?  Business is great.  Is it down?  Business is poor.  In isolation it becomes very easy to draw the wrong conclusion about what is happening on the site and in the business. Conversion rate should always be considered from two points of view:

Distribution – I specifically mean across the many different dimensions of the business. That includes at the very least content, campaigns and customer segments.  For example, what is the conversion rate of returning versus new customers?  What about customers from the UK versus those from the US?

Context:  For me that means considering the known factors that should influence conversion rate, e.g.  promotions, new product launches and external events that drive people to the site for additional information.

  1. Averages can be completely meaningless and can lead you to misery

Often the components of data that make up an average can be so different that the average alone gives a highly distorted view of reality. It can be like quoting an average daily temperature for the Sahara desert of 20 degrees (where it is very hot during the day and very cold at night). The midpoint is completely meaningless!  Just think if you chose to visit the Sahara clothed to handle an average temperature of 20 degrees?

  1. Conversion isn’t always the endgame

Engaging customers is important to driving long term loyalty and not every engagement need end in a sale. Imagine running a highly successful engagement campaign that drove traffic to the site through social media channels over a week’s period. Looking at conversion rate, you would have had a very unsuccessful week indeed!  Many retailers find, time and time again, that the most engaged customers are the most valuable.  The more they engage with the brand and site, the more valuable they tend to be.  Increasing customer engagement and increasing conversion during a visit is not necessarily a linear relation.

  1. High sales volumes do not equal high profitability

An increase in conversion rate sounds like an inherently good thing. However, if the increase occurs only because you’ve reduced the selling price or added a promotion, it may not add to the bottom line of the business. You might have higher conversion, but it might be at the expense of profitability.

  1. Conversion can’t help you decide what to do next

There are so many things that can affect your conversion rate, from your stock levels to your sort order to your price competitiveness.  Knowing that conversion has gone up, down or stayed the same does not give you any clues about what you should be doing to improve trading on the site.

In online retail there are many metrics that can be used to both gauge success and to help teams decide what to do in response to fluctuations on the site. Conversion rate is by no means the best one.

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