Contents
- What is conversion in sales?
- Why is it important to know sales conversion?
- How to calculate conversion?
- Conversion in practice
What is conversion in sales?
Conversion in sales is a key metric that demonstrates what percentage of potential customers became actual buyers. Simply put, it is the ratio of completed purchases to the number of people who showed interest in a product or service. For example, if a car dealership had 500 visitors and 150 of them purchased cars, the conversion would be 30%.
The term "conversion" comes from the English word "conversion," which translates to "transition." In the context of sales, it refers to the movement of a customer through the sales funnel—from initial interest to final purchase. Although the focus is often on the last stage of the funnel, it is important to track conversion at previous stages as well, since they significantly impact final sales. With each subsequent stage in the funnel, the number of interested customers typically decreases, and conversion shows what percentage of people successfully moves to the next level.
Why is it important to know sales conversion?
Understanding conversion in sales allows a business to assess the effectiveness of its processes. By increasing conversion, a company can significantly boost its profits. For example, if there were 3 sales from 10 applications, and after optimizing the process it became 5, then the company has gained additional revenue.
Additionally, conversion helps:
- Identify weak points in the sales funnel. If customers visit the website and show interest in a product but do not make a purchase, analyzing conversion will help pinpoint where customers are lost.
- Identify the most effective sales channels. For instance, if advertising on social media and contextual advertising attract customers, it is worth calculating the conversion for each channel to understand where to invest more funds.
- Evaluate the effectiveness of innovations. For example, if a company installs a pop-up chat on its website, it can compare conversion rates before and after its installation to see how much it increases sales.
- Plan advertising campaigns. Knowing conversions across different channels allows for more accurate calculations of how much advertising needs to be launched to achieve planned results.
How to calculate conversion?
Conversion is calculated using a simple formula:
Conversion = (number of sales / number of interested customers) × 100%
For example, if in May there were 3000 requests for window installations and 1200 windows were installed, the conversion would be (1200 / 3000) × 100% = 40%.
However, a question may arise as to how to properly determine the number of interested customers. Depending on the sales channel, different methods may apply:
- In online sales: only those who filled out a request on the website via a special form are considered.
- In telephone sales: calls from customers who submitted requests are counted.
- In offline retail: conversion is calculated based on the number of visitors who entered the store using special sensors.
Conversion in practice
Conversion also helps assess how much effort is required to attract customers. For example, if three out of ten visitors to a store make a purchase, then to achieve 30 sales, 100 people need to be attracted. In our agency, for instance, we noticed that our conversion rate is 40%. This is a good indicator, especially considering that we initially thought it was lower.
It is important to distinguish between conversion when selling to cold and warm clients. When working with cold clients, whom you don't know, the conversion is usually lower. Therefore, understanding your target audience and adapting the approach to each market segment are crucial aspects of successful business operations.