How to calculate conversion rates in marketing

Recently, we explained how easy it can be for small businesses to set SMART Objectives. As explained back then, a crucial aspect of goal setting is the need to assign key performance indicators (KPIs) to our goals. You might recall, KPIs are simply performance measurements. And, in the world of marketing we call measurements, metrics.

In this article we’re going to explain about a very useful marketing metric, known as, marketing conversion rates. In reality, every small business owner or manager should know how to calculate conversion rates. Not just for their digital marketing activities, but for all promotional functions across their small business.

Why do I need to know my marketing conversion rates?

Put simply, analysing our marketing conversion rates enables us to measure our return on investment (ROI) for each promotional activity. A marketing conversion rate analysis will show us which promotional activities are performing well. It will also bring to our attention the marketing activities, which are underperforming. With this information, we’re then able to make sound decisions, based upon factual data.

What is meant by marketing conversion?

In the context of this marketing metric, the term ‘conversion’ means: to change the form or function of a marketing activity into something that produces results. This is usually by way of action taken by a consumer or business buyer.

For instance, let’s say we’ve just opened a new Sydney Business Broker / agency. In order to start building our brand awareness, we decide to run a social media campaign on Facebook . The promotion involves providing a free 30 minute market appraisals to potential sellers. Next, to measure the campaign’s effectiveness, we create a promotion-specific landing page on our website. We then embed a ‘Register Now and Receive a Free On-site Appraisal’ call-to-action button on the landing page.

In the example above, we could measure our conversion rates in two possible ways:

Landing page visitor converted to → promotion enquiry, for example, email or telephone call.
Landing page visitor converted to → client who decides to sell their business through our new agency.

Here’s a conversion rate example

Let’s take a closer look at how the conversion rate formula is calculated.

In this example, we’ll assume that a web design sales professional is required to visit 50 prospective customers (sales leads) each day, Monday through to Friday. On average, each week this sales person successfully converts 10 of these prospects (leads) into full fee-paying customers.

To calculate the lead conversion to paying customer percentage rate, our formula would be calculated as follows:

(Number of customers acquired ÷ the number of leads he called x 100 ÷ 1 = the sales professional’s successful sale conversion rate, as expressed in percentage terms).

Or, expressed in numerical terms, our example would look like this: