What is a reasonable e-commerce conversion rate?
“I gained 1,000 visits and closed 6 deals. Is a sales conversion rate of 0.6% too low?”
Sales conversion rate is one of the major metrics of e-commerce performance. After calculating the conversion rate for an online store, naturally people would ask what a reasonable e-commerce conversion rate is.
The answer is worthy of a book but I’ll reveal the key in this article. After reading this page, you will have a better understanding on your conversion rate and get ready to bring your e-commerce business to a higher level.
The average e-commerce conversion rate is 2.42% for Q3 2018
According to the search of Monetate, the global average e-commerce conversion rate is 2.42% for Q3, 2018. The number gives us an idea on the level of e-commerce conversion rate. However, don’t jump on the conclusion that a conversion rate of 0.6% is too low. An e-commerce business even shall not use use that data as target because there are many factors that may impact the conversion rate.
Why? The conversion rates vary greatly by the following factors:
While the e-commerce businesses in the United States achieves an average conversion rate of 2.23%, a bit lower than the global one, the number for their peers in Great British is as high as 4.04%.
The average conversion rate for desktop e-commerce is 3.94% but for mobile commerce, it is just 1.84%.
Even for the smart phones, there is a big gap between Android (1.8%) and iOS (2.2%).
The conclusion? Before you compare your own conversion rate with the average, consider the nature of your traffic. If most of your visitors use Android, a conversion rate above 2% is above the average. If they use desktop computers, 2% is low in comparison to the average.
So is a conversion rate of 0.6% is really low?
If you consider only the conversion rate, it’s true a conversion rate of 0.6% is low by any criteria. However a single data of conversion rate is not much meaningful for e-commerce business.
Imagine you get 1,000 visits at very low cost, $0.1 per visit for instant. If your average order value (AOV) is $133 – according to Monetate, the US AOV is $133.77 for Q3 2018 – then the total value of 6 orders is $798. It’s not too bad if you margin is around 30% – you pay out $100 for traffic and get a gross profit of $240.
Even you have a lower AOV and/or margin so that the gross profit doesn’t cover up the advertising and operating expenses, a conversion rate of 0.6% is still probably profitable and sustainable. How? If the 6 new customers keep coming back to your store and place a lot of orders, a conversion rate of 0.6% is definitely not a problem.
That involves another key metric of e-commerce, lifetime value per visit. The larger is your lifetime value per customers, the more profitable your business could be.
What if you get 100 visitors at a higher cost, $3 per visit for instant, which is quite common for today’s PPC marketing, and you achieve an amazingly high conversion rate of 6%? Not so good you pay $300 for $240.
The above analysis reveals a simple but often ignored fact: Talking about a single sales conversion rate alone is not meaningful. To tell whether a conversion rate is good or not, we need to take the following metrics into consideration.
- Cost per visit
- Average order value
- Lifetime value per customer
Still conversion rate itself can be a good performance indicate. By comparing your latest conversion rate with your own historical data, you can easily identify the impacts of changes to your online store. Just to name a few:
- Traffic sources
- Page layout
- Incentive offers
Every business is unique – Establish your own conversion rate benchmark!
The widely cited point that a higher conversion rate means better performance is actually based on an assumption that other key metrics like cost per visitor are kept unchanged. That can be true when you’re performing conversion optimization without impacting the major cost items. For example, changing page layout for better conversions.
However in your business system, there are many other elements that would involve significant cost change when you tweak them. When you optimize your business for performance, always use the following metrics all together.
- Sales conversion rate
- Average order value
- Lifetime value per visit
Or use your conversion rate to monitor the performance change of your store. Simply compare it with the averages is not very helpful.