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What Should My eCommerce Store Conversion Be

Every online retailer, at some point during their evolution, asks the question:  “what should my conversion be?”.  The hope is that, if you could only find this holy grail number, it would serve as a panacea for all of your online business ills and allow you to finally know where your online business should be when optimized.  If you jumped when you saw the title of this article, we can assume you might be one of these hungry souls.  The good news:  you can finally stop looking.  The bad news:  it’s because there is no answer. 

When You Can Find Data, It Varies Widely
The first challenge you encounter on your quest is actually finding published conversion data for comparison.  The reality is that there is no online retail metrics clearinghouse in the sky where online retailers faithfully subscribe and dutifully report all of there closely-held internal financial information.  There are a number of different sources that publish aggregate conversion data, but a quick review of these sources highlights significant disparities, overly broad ranges, and dissimilar definitions that make any attempt at comparison all but meaningless.

 None of the Data Exactly Matches Your Business
 When you look across the published data you are faced with the challenge of deciding which number to compare to your business.  The reality is that there are dozens of differences between your business and even your closest competitor – different brand strength, different assortments, different promotions, number of offline stores, different geographies covered, marketing budgets, size of e-commerce teams, the list goes on and on.  So many variables can ultimately affect conversion that it severely limits the instructive value of the the metric itself.

A Fixation on Conversion Can Be Dangerous
Attempting to oversimplify your business and fixate on a single metric can also lead to incorrect conclusions and dangerous decisions.  Take the example illustrated below.  Scenario A depicts a retailer at “steady state.”  Scenario B depicts the same retailer after making in incremental investment in some low-cost marketing that drives additional but much less qualified traffic.
 

What should my conversion be

Does Scenario B represent an undesirable outcome?  But it must… clearly the conversion went down.  In fact the incremental traffic converted at 50% the rate of the steady state traffic.  But revenues increased (materially).  Marketing return also increased.  Why would we possibly focus on just the conversion number? 

Should You Ever Be Happy With Your Conversion?
Nielsen Online published the data depicted below in March 2009 showing top converting websites. 
 

What should my conversion be

What insights should we draw from this data?  If your conversion rate is currently at 1% should you resign now in disgrace and head towards the nearest bridge (or pub, I prefer pub)?  And what if you are Schwan’s with a staggering 50.5% conversion rate?  Should they declare victory, put things on auto-pilot and take an extended vacation (or head to the nearest pub)?  The one thing we can be certain of in either case is that senior executives at both your company and Schwans will be giving the same orders tomorrow:  get those numbers higher.  The bottom line:  there is no “final destination” for this metric — and if you think you have room for improvement you probably do.

Try a More Balanced Approach to Measuring Your Business
The reality is that is naïve to think that we can measure and run our businesses on an single, oversimplified equation like “traffic x conversion x average order value” any more than a brokerage can run theirs on the mantra of “buy low, sell high”.  Instead, we need a more pragmatic, balanced approach.  We recommend an adaptation of Kaplan and Norton’s famous balanced scorecard approach.

Building a “Balanced Dashboard” for Your Online Business
For our online retail balanced dashboard, we recommend focus on the following four areas:

  • Transactional Measures — Yes we should track conversion, but only in the company of a number of other meaningful metrics that span the customer experience.  This set should most likely include not only online metrics but also broader offline and brand impact measures (assuming those are part of your business objectives).  A cross-section of traffic measures, shopping funnel and related metrics across the online experience will shed light on how well visitors are behaving and moving through the buying process.

     

  • Repeat Customer Measures — Repeat customer measures should be given equal or even greater emphasis than transactional measures for one simple reason:  customers who return over and over again are evidence of a solid underlying value proposition (whether the value proposition is product, price, or experience-based).  Repeat customer measures should include not only the overall repeat purchase rates but also more granular breakdowns including tiering of repeat customers, average valuations and migrations within each tier, and new-to-repeat conversion ratios.  

     

  • Customer Feedback Measures — Customer feedback measures can serve as early warning systems for bigger problems down the line.  Tools such as site intercept surveys, email surveys, and net promoter scores can be used in conjunction with monitoring of return patterns and trends in service calls to identify problems and gauge the pulse of both visitors and customers.

What should my conversion be

  • Internal Process Measures — The final set of measures cannot be found in a web analytics package but are probably equally helpful in improving your business.  The goal of this set of measures is to gain visibility into what types of activities your online group is investing time in and which types it is not.  A high-performing online organization will spread their time across a range of value-added activities.  Average online groups, by contrast, will repeatedly get mired in a few areas (e.g. endless iterations regarding the home page spot or design of the next email creative) while ignoring more productive activities like customer monitoring, experience optimization, and product presentation.  Start with some simple time tracking by major activity area to see where your team is investing its time and you should quickly highlight some needed changes.

Once you’ve developed your dashboard, a baseline should be established for each set of measures at which point your task becomes tracking and monitoring these measures at meaningful intervals and investigating changes.

Slightly More Work, But a Better Result
If you’re seeking an answer to the question “what should my conversion be?” the answer is simple:  it should be higher.  If you’re seeking an answer to the question “is my business where it should be?”, take a little extra time, develop a balanced dashboard and the data that will provide you with the answer.

This post is written by Ranjit Goray. Ranjit is the Senior Manager-eCommerce in the eCommerce Practice at Ignify. Ignify is a Global Microsoft Dynamics Inner Circle Partner specializing in ecommerce for Retail, Distribution, and Manufacturing businesses. Ignify has been included as the fastest growing business in North America for 3 years in a row by Deloitte, Inc Magazine and Entrepreneur Magazine.

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