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What Is Conversion Rate & How Do You Calculate It

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What Is Conversion Rate & How Do You Calculate It

Conversion rate is one of the most common metrics used by marketers, sales folks, and business professionals.

It is discussed often and taken on the surface as an important metric or key performance indicator (KPI) for most businesses.

However, it can also be misapplied, misunderstood, or improperly established for use as a key metric.

It is important to revisit conversions, conversion rates, and the use of the metric periodically.

It is even more important for any new initiative to have the metric well defined and understood before positioning it as a key KPI.

In this guide, I’m going to dive deeply into what conversion rate is, how to calculate it, why that’s important, and ways to improve it.

What Is Conversion Rate?

Google provides one of the more concise definitions of conversion rate:

“Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad interactions that can be tracked to a conversion during the same time period.”

Now, let’s get into what it all means.

Conversions

Unlike some business and marketing metrics, understanding conversion rates require some self-definition.

It starts with defining what a conversion is – which can mean different things for varying types of brands and organizations.

You can have more than one type of conversion. As a goal, you can have it factored into a marketing funnel or customer journey. Or, it could be a firm financial metric your business hinges on.

Step one is to clearly define what a conversion is for you.

One of the most common definitions I see relates to someone becoming a lead for a business that is focused on driving leads via its website.

Another applies to ecommerce businesses, where the conversion is the completed sale transaction.

Other common definitions include certain engagement metrics for businesses that rely on ad revenue generated by page views.

Secondary types of conversions get into events, engagement, and other things like email signups that help support funnels, customer journeys, and overall sales processes.

Conversion Rate

Conversion rate is a %.

In high-level terms, it tells you the % of how many people came to your site who took the conversion goal action you defined.

Some sources provide benchmarks for specific industries or areas to help you understand a good conversion rate and offer some objectivity.

I’m not telling you to copy your competitors, but I think if you want to value conversion rate, you need internal and external research to validate where you stand and where you want to be.

Match this up with your persona research, target audiences, marketing funnels, and customer journeys.

You likely know what you want your site visitors and audience to do.

How many of them do you want to do it? How big is the universe of your target audience? What is realistic regarding the number of total visitors you think you can get?

Find answers to these questions along with mapping out your conversion goals and conversion rate goals.

How Do You Calculate Conversion Rate?

Conversion Rate Formula

The formula to calculate the conversion rate is straightforward:

Conversions / Visits* = Conversion Rate

*I have to include an asterisk, though, as some definitions might not be as straightforward.

You could also call these “clicks” or “sessions” or look at them more granularly.

My definition here can be adapted based on the language and definitions used by your analytics platform and your other KPIs.

An example in calculating conversion rate for my site (a marketing agency providing services to clients) with the inputs and calculation:

  • August 2022 website visits: 1,122.
  • August 2022 contact form submissions (my conversions): 61.
  • 61 conversions/1,122 visits = 5.4% conversion rate.

Getting It Right

Again, conversions are custom-defined by you.

It can be a common conversion goal like a lead form submission, something more secondary, or something more obscure.

That part can be somewhat custom or variable for you as well.

You can look at it as clicks to a website from a specific channel or ad campaign.

You can get really granular with the segmentation of your data, source and channel filtering, and even with the definitions themselves.

That becomes especially variable or custom if you’re tracking specific actions that lead up to a conversion goal and how granular you want to be with it.

Make sure the definition of what you’re counting as a conversion and what you’re counting as the total audience (clicks, visits, or some other “total” metric) is mapped out in a meaningful way.

Why Do I Need To Be Able To Calculate Conversion Rate?

First, where do you measure and track conversion rate? You can use Google Analytics, other analytics suites, or any data you must manually calculate.

Google Analytics

If you’re relying on Google Analytics (GA), you’ll want to ensure you have your “Goals” set up properly and test them. Conversions are reported based on the goals you configure.

Out of the box, Google has no context as to what a conversion is for you and no ability to calculate a conversion rate off of it.

If you use GA, dive into conversion goal configuration and testing to ensure things are in a good place before you trust the metrics you see (if you inherited the setup) or move forward with any measurement and improvement plan.

And, speaking of mapping out – tracking and measurement are critical.

You want to ensure that your tech stack and tools can help you properly track visits, conversions, and the overall conversion rate in alignment with your definitions and goals.

Getting this right is critical, whether it is Google Analytics or third-party reporting tools.

Segmentation & Filtering

Plus, you’re able to then segment at the levels you want to with examples, including:

  • By conversion type (if you have more than one).
  • All website traffic.
  • By source or channel.
  • By pages/actions/events in the session.
  • By campaign or initiative.

There are many more segments and ways to filter and slice up conversions and conversion rate reporting.

You want to be able to calculate the conversion rate and get into the details with segments of traffic and your audience to help understand where you can improve.

What Is a Good Conversion Rate?

Calculating conversion rates and having the data is one thing; using it to make improvements is where the real work starts.

Improving Conversion Rates

You can look for improvement in two broad areas, and I strongly recommend evaluating both.

One is sources of traffic and the influences that drive visitors to your site.

That includes advertising, referrals, and any awareness activities and campaigns you have that generate traffic.

The other area consists of what influences the traffic that has already arrived at the site – things like UX/UI evaluation, review of messaging, calls to action, and ways that users navigate through and engage with the site.

Improvement in this arena is often called Conversion Rate Optimization or CRO.

Traffic Sources Optimization

In the case of the traffic you’re sending to the site, you can look at targeting, ad creative, and keywords you’re organically ranking for – the ways that ad targeting and creative provide the first impression or directly funnel traffic into the site.

There are a variety of optimization and refinement tactics to shift your focus to higher quality traffic and aim to increase conversion rate by getting more qualified visitors from external sources that you influence.

Beware, though, that you need to have a good idea of your customer journey and not knock out traffic that is awareness focused or at the top of the funnel (e.g., traffic tied to thought leadership).

Increasing the conversion rate is important, but make sure you segment well enough to not inadvertently stop targeting the top of the funnel, awareness-level visitors, and sources.

Conversion Rate Optimization

Now, onto looking inward at the traffic you already have.

This is where most people start digging into CRO tactics. Web analytics can help you see where people exit, bounce, and stop short of getting to your conversion actions.

Beyond that, great heat mapping and CRO tools will give you insights into UX and UI issues and how people truly engage with your site versus how you intended in your design.

By focusing on CRO and putting a strategy into place, you can evaluate everything from site speed to content, messaging, and UI.

I strongly encourage you to do so.

Conclusion

Conversion rate continues to be a valuable marketing metric.

Understanding it, defining it for your organization, measuring it, and improving it are all important.

Whether you have a small business or enterprise-level website, you likely care about specific conversion goals.

In short – for conversions and conversion rate – understand, define, measure, and improve it.

Yes, we all want more traffic. And maybe a static conversion rate is fine if you add more traffic.

However, wouldn’t you like more traffic and a higher conversion rate?

It is possible to have both, and crucial to understanding what levers to pull to influence it.

More resources: 


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Google Dials Back AI Overviews In Search Results, Study Finds

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Photo of a mobile device in mans hand with generative google AI Overview on the screen.

According to new research, Google’s AI-generated overviews have undergone significant adjustments since the initial rollout.

The study from SE Ranking analyzed 100,000 keywords and found Google has greatly reduced the frequency of AI overviews.

However, when they appear, they’re more detailed than they were previously.

The study digs into which topics and industries are more likely to get an AI overview. It also looks at how the AI snippets interact with other search features like featured snippets and ads.

Here’s an overview of the findings and what they mean for your SEO efforts.

Declining Frequency Of AI Overviews

In contrast to pre-rollout figures, 8% of the examined searches now trigger an AI Overview.

This represents a 52% drop compared to January levels.

Yevheniia Khromova, the study’s author, believes this means Google is taking a more measured approach, stating:

“The sharp decrease in AI Overview presence likely reflects Google’s efforts to boost the accuracy and trustworthiness of AI-generated answers.”

Longer AI Overviews

Although the frequency of AI overviews has decreased, the ones that do appear provide more detailed information.

The average length of the text has grown by nearly 25% to around 4,342 characters.

In another notable change, AI overviews now link to fewer sources on average – usually just four links after expanding the snippet.

However, 84% still include at least one domain from that query’s top 10 organic search results.

Niche Dynamics & Ranking Factors

The chances of getting an AI overview vary across different industries.

Searches related to relationships, food and beverages, and technology were most likely to trigger AI overviews.

Sensitive areas like healthcare, legal, and news had a low rate of showing AI summaries, less than 1%.

Longer search queries with ten words were more likely to generate an AI overview, with a 19% rate indicating that AI summaries are more useful for complex information needs.

Search terms with lower search volumes and lower cost-per-click were more likely to display AI summaries.

Other Characteristics Of AI Overviews

The research reveals that 45% of AI overviews appear alongside featured snippets, often sourced from the exact domains.

Around 87% of AI overviews now coexist with ads, compared to 73% previously, a statistic that could increase competition for advertising space.

What Does This Mean?

SE Ranking’s research on AI overviews has several implications:

  1. Reduced Risk Of Traffic Losses: Fewer searches trigger AI Overviews that directly answer queries, making organic listings less likely to be demoted or receive less traffic.
  2. Most Impacted Niches: AI overviews appear more in relationships, food, and technology niches. Publishers in these sectors should pay closer attention to Google’s AI overview strategy.
  3. Long-form & In-Depth Content Essential: As AI snippets become longer, companies may need to create more comprehensive content beyond what the overviews cover.

Looking Ahead

While the number of AI overviews has decreased recently, we can’t assume this trend will continue.

AI overviews will undoubtedly continue to transform over time.

It’s crucial to monitor developments closely, try different methods of dealing with them, and adjust game plans as needed.


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10 Tips on How to Rock a Small PPC Budget

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10 Tips on How to Rock a Small PPC Budget

Many advertisers have a tight budget for pay-per-click (PPC) advertising, making it challenging to maximize results.

One of the first questions that often looms large is, “How much should we spend?” It’s a pivotal question, one that sets the stage for the entire PPC strategy.

Read on for tips to get started or further optimize budgets for your PPC program to maximize every dollar spent.

1. Set Expectations For The Account

With a smaller budget, managing expectations for the size and scope of the account will allow you to keep focus.

A very common question is: How much should our company spend on PPC?

To start, you must balance your company’s PPC budget with the cost, volume, and competition of keyword searches in your industry.

You’ll also want to implement a well-balanced PPC strategy with display and video formats to engage consumers.

First, determine your daily budget. For example, if the monthly budget is $2,000, the daily budget would be set at $66 per day for the entire account.

The daily budget will also determine how many campaigns you can run at the same time in the account because that $66 will be divided up among all campaigns.

Be aware that Google Ads and Microsoft Ads may occasionally exceed the daily budget to maximize results. The overall monthly budget, however, should not exceed the Daily x Number of Days in the Month.

Now that we know our daily budget, we can focus on prioritizing our goals.

2. Prioritize Goals

Advertisers often have multiple goals per account. A limited budget will also limit the number of campaigns – and the number of goals – you should focus on.

Some common goals include:

  • Brand awareness.
  • Leads.
  • Sales.
  • Repeat sales.

In the example below, the advertiser uses a small budget to promote a scholarship program.

They are using a combination of leads (search campaign) and awareness (display campaign) to divide up a daily budget of $82.

Screenshot from author, May 2024

The next several features can help you laser-focus campaigns to allocate your budget to where you need it most.

Remember, these settings will restrict traffic to the campaign. If you aren’t getting enough traffic, loosen up/expand the settings.

3. Location Targeting

Location targeting is a core consideration in reaching the right audience and helps manage a small ad budget.

To maximize a limited budget, you should focus on only the essential target locations where your customers are located.

While that seems obvious, you should also consider how to refine that to direct the limited budget to core locations. For example:

  • You can refine location targeting by states, cities, ZIP codes, or even a radius around your business.
  • Choosing locations to target should be focused on results.
  • The smaller the geographic area, the less traffic you will get, so balance relevance with budget.
  • Consider adding negative locations where you do not do business to prevent irrelevant clicks that use up precious budget.

If the reporting reveals targeted locations where campaigns are ineffective, consider removing targeting to those areas. You can also try a location bid modifier to reduce ad serving in those areas.

managing ppc budget by location interactionScreenshot by author from Google Ads, May 2024

4. Ad Scheduling

Ad scheduling also helps to control budget by only running ads on certain days and at certain hours of the day.

With a smaller budget, it can help to limit ads to serve only during hours of business operation. You can choose to expand that a bit to accommodate time zones and for searchers doing research outside of business hours.

If you sell online, you are always open, but review reporting for hourly results over time to determine if there are hours of the day with a negative return on investment (ROI).

Limit running PPC ads if the reporting reveals hours of the day when campaigns are ineffective.

Manage a small ppc budget by hour of dayScreenshot by author from Google Ads, May 2024

5. Set Negative Keywords

A well-planned negative keyword list is a golden tactic for controlling budgets.

The purpose is to prevent your ad from showing on keyword searches and websites that are not a good match for your business.

  • Generate negative keywords proactively by brainstorming keyword concepts that may trigger ads erroneously.
  • Review query reports to find irrelevant searches that have already led to clicks.
  • Create lists and apply to the campaign.
  • Repeat on a regular basis because ad trends are always evolving!

6. Smart Bidding

Smart Bidding is a game-changer for efficient ad campaigns. Powered by Google AI, it automatically adjusts bids to serve ads to the right audience within budget.

The AI optimizes the bid for each auction, ideally maximizing conversions while staying within your budget constraints.

Smart bidding strategies available include:

  • Maximize Conversions: Automatically adjust bids to generate as many conversions as possible for the budget.
  • Target Return on Ad Spend (ROAS): This method predicts the value of potential conversions and adjusts bids in real time to maximize return.
  • Target Cost Per Action (CPA): Advertisers set a target cost-per-action (CPA), and Google optimizes bids to get the most conversions within budget and the desired cost per action.

7. Try Display Only Campaigns

display ads for small ppc budgetsScreenshot by author from Google Ads, May 2024

For branding and awareness, a display campaign can expand your reach to a wider audience affordably.

Audience targeting is an art in itself, so review the best options for your budget, including topics, placements, demographics, and more.

Remarketing to your website visitors is a smart targeting strategy to include in your display campaigns to re-engage your audience based on their behavior on your website.

Let your ad performance reporting by placements, audiences, and more guide your optimizations toward the best fit for your business.

audience targeting options for small ppc budgetScreenshot by Lisa Raehsler from Google Ads, May 2024

8. Performance Max Campaigns

Performance Max (PMax) campaigns are available in Google Ads and Microsoft Ads.

In short, automation is used to maximize conversion results by serving ads across channels and with automated ad formats.

This campaign type can be useful for limited budgets in that it uses AI to create assets, select channels, and audiences in a single campaign rather than you dividing the budget among multiple campaign types.

Since the success of the PMax campaign depends on the use of conversion data, that data will need to be available and reliable.

9. Target Less Competitive Keywords

Some keywords can have very high cost-per-click (CPC) in a competitive market. Research keywords to compete effectively on a smaller budget.

Use your analytics account to discover organic searches leading to your website, Google autocomplete, and tools like Google Keyword Planner in the Google Ads account to compare and get estimates.

In this example, a keyword such as “business accounting software” potentially has a lower CPC but also lower volume.

Ideally, you would test both keywords to see how they perform in a live campaign scenario.

comparing keywords for small ppc budgetsScreenshot by author from Google Ads, May 2024

10. Manage Costly Keywords

High volume and competitive keywords can get expensive and put a real dent in the budget.

In addition to the tip above, if the keyword is a high volume/high cost, consider restructuring these keywords into their own campaign to monitor and possibly set more restrictive targeting and budget.

Levers that can impact costs on this include experimenting with match types and any of the tips in this article. Explore the opportunity to write more relevant ad copy to these costly keywords to improve quality.

Every Click Counts

As you navigate these strategies, you will see that managing a PPC account with a limited budget isn’t just about monetary constraints.

Rocking your small PPC budgets involves strategic campaign management, data-driven decisions, and ongoing optimizations.

In the dynamic landscape of paid search advertising, every click counts, and with the right approach, every click can translate into meaningful results.

More resources: 


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What Are They Really Costing You?

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What Are They Really Costing You?

This post was sponsored by Adpulse. The opinions expressed in this article are the sponsor’s own.

As managers of paid media, one question drives us all: “How do I improve paid ad performance?”. 

Given that our study found close variant search terms perform poorly, yet more than half of the average budget on Google & Microsoft Ads is being spent on them, managing their impact effectively could well be one of your largest optimization levers toward driving significant improvements in ROI. 

“Close variants help you connect with people who are looking for your business, despite slight variations in the way they search.” support.google.com

Promising idea…but what about the execution?

We analyzed over 4.5 million clicks and 400,000 conversions to answer this question: With the rise in close variants (intent matching) search terms, what impact are they having on budgets and account performance? Spoiler alert, the impact is substantial. 


True Match Vs. Close Variants: How Do They Perform?

To understand close variant (CV) performance, we must first define the difference between a true match and a close variant. 

 

What Is a True Match? 

We still remember the good-old-days where keyword match types gave you control over the search terms they triggered, so for this study we used the literal match types to define ‘close variant’ vs ‘true match’. 

  • Exact match keyword => search term matches the keyword exactly. 
  • Phrase match keyword => search term must contain the keyword (same word order).
  • Broad match keyword => search term must contain every individual word in the keyword, but the word order does not matter (the way modified broad match keywords used to work).   

 

What Is a Close Variant? 

If you’re not familiar with close variants (intent matching) search terms, think of them as search terms that are ‘fuzzy matched’ to the keywords you are actually bidding on. 

Some of these close variants are highly relevant and represent a real opportunity to expand your keywords in a positive way. 

Some are close-ish, but the conversions are expensive. 

And (no shocks here) some are truly wasteful. 

….Both Google and Microsoft Ads do this, and you can’t opt-out.

To give an example: if you were a music therapist, you might bid on the phrase match keyword “music therapist”. An example of a true match search term would be ‘music therapist near me’ because it contains the keyword in its true form (phrase match in this case) and a CV might be ‘music and art therapy’.


How Do Close Variants Compare to True Match?

Short answer… poorly, on both Google and Microsoft Ads. Interestingly however, Google showed the worst performance on both metrics assessed, CPA and ROAS. 

Image created by Adpulse, May 2024

1718772963 395 What Are They Really Costing You

Image created by Adpulse, May 2024

Want to see the data – jump to it here…

CVs have been embraced by both platforms with (as earlier stated), on average more than half of your budget being spent on CV variant matches. That’s a lot of expansion to reach searches you’re not directly bidding for, so it’s clearly a major driver of performance in your account and, therefore, deserving of your attention. 

We anticipated a difference in metrics between CVs and true match search terms, since the true match search terms directly align with the keywords you’re bidding on, derived from your intimate knowledge of the business offering. 

True match conversions should therefore be the low-hanging fruit, leaving the rest for the platforms to find via CVs. Depending on the cost and ROI, this isn’t inherently bad, but logically we would assume CVs would perform worse than true matches, which is exactly what we observed. 


How Can You Limit Wastage on Close Variants?

You can’t opt out of them, however, if your goal is to manage their impact on performance, you can use these three steps to move the needle in the right direction. And of course, if you’re relying on CVs to boost volume, you’ll need to take more of a ‘quality-screening’ rather than a hard-line ‘everything-must-go’ approach to your CV clean out!

 

Step 1: Diagnose Your CV Problem 

We’re a helpful bunch at Adpulse so while we were scoping our in-app solution, we built a simple spreadsheet that you can use to diagnose how healthy your CVs are. Just make a copy, paste in your keyword and search term data then run the analysis for yourself. Then you can start to clean up any wayward CVs identified. Of course, by virtue of technology, it’s both faster and more advanced in the Adpulse Close Variant Manager 😉.

 

Step 2: Suggested Campaign Structures for Easier CV Management  

Brand Campaigns

If you don’t want competitors or general searches being matched to your brand keywords, this strategy will solve for that. 

Set up one ad group with your exact brand keyword/s, and another ad group with phrase brand keyword/s, then employ the negative keyword strategies in Step 3 below. You might be surprised at how many CVs have nothing to do with your brand, and identifying variants (and adding negative keywords) becomes easy with this structure.

Don’t forget to add your phrase match brand negatives to non-brand campaigns (we love negative lists for this).

Non-Brand Campaigns with Larger Budgets

We suggest a campaign structure with one ad group per match type:

Example Ad Groups:

    • General Plumbers – Exact
    • General Plumbers – Phrase
    • General Plumbers – Broad
    • Emergency Plumbers – Exact
    • Emergency Plumbers – Phrase
    • Emergency Plumbers – Broad

This allows you to more easily identify variants so you can eliminate them quickly. This also allows you to find new keyword themes based on good quality CVs, and add them easily to the campaign. 

Non-Brand Campaigns with Smaller Budgets

Smaller budgets mean the upside of having more data per ad group outweighs the upside of making it easier to trim unwanted CVs, so go for a simpler theme-based ad group structure:

Example Ad Groups:

    • General Plumbers
    • Emergency Plumbers

 

Step 3: Ongoing Actions to Tame Close Variants

Adding great CVs as keywords and poor CVs as negatives on a regular basis is the only way to control their impact.

For exact match ad groups we suggest adding mainly root negative keywords. For example, if you were bidding on [buy mens walking shoes] and a CV appeared for ‘mens joggers’, you could add the single word “joggers” as a phrase/broad match negative keyword, which would prevent all future searches that contain joggers. If you added mens joggers as a negative keyword, other searches that contain the word joggers would still be eligible to trigger. 

In ad groups that contain phrase or broad match keywords you shouldn’t use root negatives unless you’re REALLY sure that the root negative should never appear in any search term. You’ll probably find that you use the whole search term added as an exact match negative much more often than using root negs.


The Proof: What (and Why) We Analyzed

We know CVs are part of the conversations marketers frequently have, and by virtue of the number of conversations we have with agencies each week, we’ve witnessed the increase of CV driven frustration amongst marketers. 

Internally we reached a tipping point and decided to data dive to see if it just felt like a large problem, or if it actually IS a large enough problem that we should devote resources to solving it in-app. First stop…data. 

Our study of CV performance started with thousands of Google and Microsoft Ads accounts, using last 30-day data to May 2024, filtered to exclude:

  • Shopping or DSA campaigns/Ad Groups.
  • Accounts with less than 10 conversions.
  • Accounts with a conversion rate above 50%.
  • For ROAS comparisons, any accounts with a ROAS below 200% or above 2500%.

Search terms in the study are therefore from keyword-based search campaigns where those accounts appear to have a reliable conversion tracking setup and have enough conversion data to be individually meaningful.

The cleaned data set comprised over 4.5 million clicks and 400,000 conversions (over 30 days) across Google and Microsoft Ads; a large enough data set to answer questions about CV performance with confidence.

Interestingly, each platform appears to have a different driver for their lower CV performance. 

CPA Results:

Google Ads was able to maintain its conversion rate, but it chased more expensive clicks to achieve it…in fact, clicks at almost double the average CPC of true match! Result: their CPA of CVs worked out roughly double the CPA of true match.                 

Microsoft Ads only saw slightly poorer CPA performance within CVs; their conversion rate was much lower compared to true match, but their saving grace was that they had significantly lower CPCs, and you can afford to have a lower conversion rate if your click costs are also lower. End outcome? Microsoft Ads CPA on CVs was only slightly more expensive when compared to their CPA on true matches; a pleasant surprise 🙂.

What Are They Really Costing You

Image created by Adpulse, May 2024

ROAS Results:

Both platforms showed a similar story; CVs delivered roughly half the ROAS of their true match cousins, with Microsoft Ads again being stronger overall. 

 

1718772963 395 What Are They Really Costing You

Image created by Adpulse, May 2024

Underlying Data:

For the data nerds amongst us (at Adpulse we self-identify here !) 

1718772963 88 What Are They Really Costing You

Image created by Adpulse, May 2024


TL;DR

Close variant search terms consume, on average, more than half an advertiser’s budget whilst in most cases, performing significantly worse than search terms that actually match the keywords. How much worse? Read above for details ^. Enough that managing their impact effectively could well be one of your largest optimization levers toward driving significant improvements in account ROI. 


Image Credits

Featured Image: Image by Adpulse. Used with permission.

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