What does an elephant and your conversion rate have in common?

Not a question you'll get asked every day, I'll wager, but one that has more of a bearing on your day-to-day life than you might imagine if you're an e-tailer.

Some time ago I stumbled upon an anecdote in which 3 blind men (uneducated in relation to even the basics of the subject animal) were given the job of measuring an elephant, and to cut a short story even shorter they came at it from 3 different angles and arrived at 3 quite different definitions and measures of the same creature.

You see, an elephant is a great big thing with bits sticking out all over the place. I've encountered one or 2 on my travels and due to the large amount of effort involved in the exercise, if someone had asked me to measure the elephant in front of me I'd probably have asked: 'Which bit do you want me to measure?' The 3 blind men didn't ask this question for the purposes of the anecdote, of course...

• There's the height, and should I measure to the shoulder or the top of the head?
• Then there's the length, but do I include the outstretched trunk and tail in that?
• Then there's the tusks: is that it?
• Or is it the girth, perhaps?
• I'd probably need a step-ladder, perhaps 2 step-ladders, and somebody else to hold the other end of the tape measure.
• On top of this, I could weigh it, and there's a whole host of medical type stats I could take too.
• Or, do I just measure absolutely everything I can? I'm bound to get it right then!

Now assuming you've been asked to measure said elephant for a reason, it would be handy to know the reason behind the request because there are so many things you could possibly measure - each measure requiring a distinct approach and serving a different purpose.

You need to ask the same question when looking at your conversion rate: 'Which bit or bits should I measure?' for the same reasons: there are several definitions of the same thing, each revealing something unique.

If I ask somebody the question 'what's your conversion rate?', in the event that person answers other than 'I don't know' they will without fail give me an overall figure. Generally speaking, however, it can be pretty unhelpful to look at overall, or top line conversion rate in isolation apart from in a broad benchmarking exercise. Most of the time it really doesn't help in any really meaningful way, but if you're converting overall at under 2%, the average across the Internet, you know you need to go to work.

It's handy to know what a good 'global maximum' is for your sector and work towards that, although it's good to understand the drivers for conversion and the potential limiting factors first before resources are wasted - there's no point aiming for 10% if nobody else in your industry has ever got near 5%.

At this juncture, it might be worth quickly referring back to the first article in which I set out the context, simply to say that there will be some who read this who have not got a clue as to what any of their following measures are, especially basket and checkout stats. For us, an online retailer not having key stats at their fingertips is this is as unbelievable as Pete Vinnicombe staying after 5-30pm, or Neil Williams leaving a short answerphone message...

To improve anything, one needs to understand it. In this case, what it comprises, and the different ways it can be measured.

Here are some definitions of conversion rate that are bandied about from time to time:

• sales / unique visitors
• sales / total visits
• actions / unique visitors (e.g. a click on a call to action, or a sign-up)
• sales / number of checkouts started
• sales / visitors (segmented by campaign or source)
• (sales – refunds) / unique visitors (or total visitors)

We favour the first one, and most of the above we'd consider as valid measures but each will give a slightly different picture.

Sales / total visits is contentious, as it will count somebody who leaves the site even briefly and then comes back, as 2 visits. Different analytics tools measure things in slightly different ways too, so that needs to be taken into account.

Working as we do with retailers, we're very much focused on a sale as a conversion but we'd utilise the actions / unique visitors definition when running a test, as that's exactly what we're after - how many people take a particular action, given a choice of 2 or 3. It is often desirable though, to measure 'micro conversions' - actions other than the main goal conversion that could include a user writing a review or answering a question, or requesting information or contact.

Measuring checkouts started, for us, really can't be described as a conversion if they aren't completed - a bit like hitting the post in footy, it's close, but not a goal. We prefer a slightly different definition of this metric: quite simply basket or checkout abandonment, which in itself is incredibly helpful in creating a focus point for testing - what's going on in peoples minds for them to bail at this point?

We would actually advocate that conversion rate be measured and referred to by source: natural, direct, paid search, affiliate traffic, email etc, or even by time period which is far more effective in aiding understanding of what's happening and what you need to be working to improve. If that's not enough to think about, theres's conversion rate for first time visitors, repeat visitors etc etc.

When looking at revenue and/or profitability you might want to use the last definition: sales minus any refunds / uniques, this for obvious reasons as it will give you a bottom line number of completed sales with the money in the bank.

In fact, you should know how much revenue is attributable to each source - always good to know, and will help you focus marketing resources on where the best return is, and optimisation resources where it's poor.

Back to our elephant...so many possible ways to measure it, but there's no point measuring how high it is if you're fitting it with a new mahout seat or you need to know how strong a new trailer needs to be, and no point in weighing it if you want to find out if it will fit underneath something. Ultimately, what you measure will be determined by your sales and marketing activities, the channels you use and your product range, and what you want to find out.

It's important that everybody measuring conversion rate uses the same measure consistently across an organisation. Conversely, different teams or departments can use whichever measure best suits their purpose. In this situation, however, care must be taken to understand the differences and take these into account when collectively scrutinising results and planning strategy.

So, if I asked you what your conversion rate was, or what your checkout or basket completion rate was, would you be able to give me an accurate figure? And would you then be able to go on to explain which measure is used and why? Truth is, plenty of SME's don't have a clue, that's the impression I get when I'm speaking to people on a daily basis. It's verging on negligence, but the fact of the matter is that it's a lot of work and not everybody has the time or real understanding to derive true benefit from just this one small area of analytics. Given a choice, time must necessarily be spent on being a retailer as opposed to a data analyst, and to employ a really good data analyst costs £40-50k or even more - yes, really. A good 'web manager' for half the money will be able to determine the basics though, but to take you into the real detail a bona fide data analyst is what's needed.

What's the choice you've made - do you measure, and more importantly, do you understand what it is you are measuring, and why you measure it? And assuming that you're one of those that could answer 'yes' to these questions, what do you do with this information? How well spent is your time in turning the information at your fingertips back into profit for your business? What is the point in you knowing this stuff if you do nothing useful with it?

The answer, quite clearly, is none, but this, dear reader, is the subject for another day. For us however, it is a subject for every day, because so many online retailers waste resources and need help here. This is the very principle upon which our service model is based - not SEO as an in-house after-sales service as seems to be the norm, or the pretence of offering the cliche 'complete solution in-house'. What we think is most important is providing help with understanding and improving the means by which you make money online. Your analytics data is a potential gold mine so don't waste it.

Next time we'll take a high level look at what this selling online malarkey is really all about, from the point when somebody has landed on your site to the moment they become a customer, or the moment they decide to become a customer of a competitor of yours.