What is a Conversion Rate & how do you measure it?

This guide explains the fundamentals of conversion rate and how it plays a role across different stages of your product & marketing funnel.

What is a Conversion Rate & how do you measure it?
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What is a conversion rate? 💪🏼

Conversion rate refers to the percentage of users who take a desired action on the product, such as 👇🏼
  • making a purchase,
  • signing up for a free trial,
  • upgrading to a paid plan.
It can also refer to the percentage of visitors who convert into active users of the product.

Why is conversion rate important? 🤔

Conversion rates are of different types and are wildly important if you are growing a product. There’s a conversion rate for each stage of the funnel right from user acquisition to monetisation. But if you’re wondering how conversion rates are important in different stages of the funnel, read on

1. Conversion rate for user acquisition 👤

If you’re running paid acquisition campaigns, a higher conversion rate means that the cost per acquisition is lower, as more users are taking the desired action for the same amount of spend.

2. Conversion rate for user onboarding 🪜

Tracking the conversion rate at the onboarding stage gives you a clear picture of active users on your product. A great metric to track at the user onboarding stage is your sign-up conversion rate. A low conversion rate at this point may signal obstacles with user onboarding and or blockers in the flow.

3. Conversion rate for understanding PMF ✅

A low conversion rate for early-stage products can indicate that it’s not meeting the needs of the target market or that the value proposition is not clear. This is valuable feedback for the product team, who can then experiment with different positioning, onboarding flows, and marketing strategies.
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How do you measure conversion rate? 🧮

To measure conversion rate, you need to identify the desired action that you want your users to take on each step of the customer journey. This could be a simple sign-up, or completing any other action that aligns with your business goals.
Once you have identified the desired action, you can calculate the conversion rate using the following formula ⬇️
Conversion Rate = (Number of conversions / Total number of visitors) x 100% For example, if your product receives 1,000 users and 100 of them end up buying a subscription, your conversion rate would be 10%.

How to improve the conversion rate? 💪🏼

Conversion rate is always a subset of different levers across the stages of your user journey. Here are some levers you can tweak to improve the product conversion rates effectively

✅ Improve the overall user experience

Ensure that your product is easy to use and navigate, with clear and intuitive interfaces, to reduce friction and improve the user experience.

✅ Improve your user onboarding flow

A clear, concise, and guided onboarding process can help new users understand the value of the product and reduce abandonment rates.

✅ Provide ample social proof in your marketing & user funnel

Highlight customer reviews, testimonials, or case studies to build trust and confidence in your product, which can increase conversion rates.

✅ Use persuasive copy

Use persuasive copywriting techniques, such as addressing the user's pain points, emphasizing the benefits, and creating a sense of urgency, to motivate users to take action.

✅ Simplify pricing

Make your pricing clear and simple, with no hidden costs, to avoid confusion and reduce the barriers to purchase.
There are a ton of growth metrics that can affect your product conversion rate. However, we have only listed the top 4 metrics which have an outsized impact on your conversion rates

✅ Average order value (AOV)

Average Order Value (AOV) measures the average amount spent per transaction and is closely related to the conversion rate. A higher AOV can indicate that current users are engaged with your product. This proves that potential users will also have a higher likelihood of conversion.

✅ Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) measures the cost of acquiring a new customer and is closely related to the conversion rate. A lower CAC can indicate that the product or marketing campaign is more effective at converting users, resulting in a lower cost per acquisition.

✅ User retention rate

User retention rate measures the percentage of users who continue to use the product over a certain period of time. A higher retention rate can indicate that the product is effectively meeting user needs and providing value, which can lead to increased conversion rates for both existing & new users.

✅ Conversion funnel metrics

Metrics such as conversion rate at each stage of the funnel, drop-off rate, and time to conversion, can provide insights into your user journey and help you identify areas of optimization to improve conversion rate.
P.S: If you loved reading about this growth metric, you will find this list of 23 growth metrics incredibly helpful 💪🏼

Written by

GrowthX Editorial Team
GrowthX Editorial Team

Growth can be achieved in a profitable, scalable & sustainable way. That’s what we write here, one blog at a time 🚀

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