Every business needs to keep going through a build-improve-repeat cycle if it wants to survive or grow. However, the ‘improve’ step can’t be based on hunches or intuition: ideally, the basis for deciding what to improve and how should be cold, hard data.
For online businesses, the actions taken by their website visitors represent a wealth of useful data that can be analyzed to arrive at certain concrete steps the business should take. Combining such data in certain ways can also produce a few handy metrics that business owners can use as general barometers for monitoring how well their offerings are doing, and what they can do differently.
Two such metrics are the ‘click-through rate’ (CTR) and the ‘conversion rate’. Let’s understand how they’re calculated, what they indicate, and why every business should track them.
CTR and Conversion rate: Definition and Calculation
1. Click-Through Rate (CTR):
The CTR is the proportion of people who click an on-screen element, compared to the total number of people who see that element. This element could be a button, an image, a search result, a banner, an ad, etc.
Sometimes, some slight variants of the CTR can be more useful than the “pure” CTR, such as the total number of clicks by unique shoppers or cohorts.
Formula: Total Clicks / Total Impressions. Here, an impression is any instance of a person being shown the on-screen element in question.
Example: Suppose a certain search result was shown to 2000 people (the number of impressions), but only 500 of those 2000 people actually clicked the search result. In such a scenario, the CTR for that search result would be 500 / 2000 = 25%.
The conversion rate for a given action is the proportion of site visitors who perform that action, compared to the total number of site visitors. The kinds of actions that are usually relevant in an ecommerce context are: adding a product to cart, making a purchase, signing up for a newsletter or mailing list. When used without any additional qualifications, ‘conversion rate’ usually refers to the conversion rate for purchases.
Formula: Total number of site visitors who perform action X / Total number of site visitors
Example: Suppose that 1200 people have visited the page for a certain product, but only 400 of them actually bought the product. In such a scenario, the conversion rate for that product is 400 / 1200 = 33.33%.
What can CTRs and Conversion rates do for businesses?
While they may seem extremely elementary, these two metrics can provide businesses with a wealth of useful information. Indeed, their very simplicity makes them extremely versatile: they can be used as the starting points for taking several different business-related and technical decisions.
Let’s take a closer look at the inferences that can be drawn from different values of the CTR and the conversion rate.
- Low search CTR for a product, and also low conversion rate for that product: This can mean that the product doesn’t appear in search results all that often, or that your site visitors just don’t like it.
- High search CTR for a product, but low conversion rate: This likely indicates that either the product itself is rather unattractive to your visitors, or that its product page could be improved (e.g. better photos and descriptions, more variants, etc.).
- High search CTR for a product, as well as a high conversion rate: Since this product sells well and is probably also searched for quite often, you need to try and make it even more accessible to your site visitors. For instance, you can explore if you can let your search engine display it as a result for a wider variety of search queries, or can display it prominently on your home page. In addition, you should make sure that you use it as much as possible as a target for cross-selling and upselling.
- A high conversion rate that is mainly the result of a particular marketing channel: This is a sign that our marketing for that channel is yielding good results.
- There are specific pages on our site that have an unusually high conversion rate: This can indicate that we should study what makes those pages special, and then try and replicate those aspects on other pages as well.
- There are seasonal cycles and trends in search CTR and conversion rates for certain products: This suggests that we should tune our marketing as well as our inventory in such a way as to adapt to such seasonality.
- A product has an add-to-cart rate that is much higher than its conversion rate: This probably indicates that there’s something not quite right about your checkout and payment process: perhaps it’s too complicated or confusing, or perhaps it doesn’t inspire confidence.
Ultimately, the ability to make smart decisions based on such metrics is what can allow a business to increase the number of people who buy from it, the amount of sales, and ultimately, the revenue that it generates.
Why it’s important to start tracking clicks and other events as early as possible
Many key features on business websites, particularly ecommerce websites, are heavily dependent on AI-based algorithms working behind the scenes. Some such features are a ‘Frequently Bought Together’ or ‘Related Products’ section, or the personalization of recommendations. But these algorithms can’t work in a vacuum: they need user behavior data to operate on, and the more data they have access to, the better the results they produce.
In addition, implementing analytics on an as-needed basis comes with a large number of future hassles. Such headaches can be avoided by gathering as much visitor behavior data as possible (even something as seemingly innocuous as the mouse cursor lingering in one area for too long) right from the very beginning. In this way, regardless of what features may be needed in the future, the raw data that will power them will already be available, which should allow you to have more peace of mind.
Ideally, you should track what your visitors do on your site in as much detail as possible by including a lot of information in each “event” that is stored. In addition, wherever possible, you should also track interactions that occur off-site, such as when potential customers open your emails or see your ads.
CTRs and Conversion rates: simple but critical for businesses
Thus, it should be clear that gathering the data required to calculate and usefully analyze various kinds of CTR and conversion rates is something that every business needs to take very seriously from day one.
For a powerful AI-based site search engine that provides you with several different search-related analytics, look no further than Zevi. By leveraging the power of Natural Language Processing (NLP), Zevi can understand the search intent behind queries and produce highly relevant search results as a result. Try our Shopify App, or reach out to us today for a free demo!