What is Conversion Rate Optimisation?

What is Conversion Rate Optimization?

Conversion Rate Optimization is about increasing the percentage of website visitors who would take the action you want them to take, be it buying a product, filling out a form, or clicking on a link. Anything!

For example,

For Nike - buying a Nike product from their website.

For Zomato - ordering food from their app.

For Netflix - it's getting a Netflix subscription to its streaming platform.

For Kraftshala- it is getting people like you apply to one of our programs by filling up a form like this .

How Do You Calculate Conversion Rate?

When calculating conversion rates, we accumulate data on the number of visitors we receive, plus check how many of those have performed the desired action that we want them to.

So, by the formula -

Conversion Rate = (No. of conversions/Total Visitors)*100

Let's suppose a webpage of yours receives an average of 1000 visitors a month. And the number of conversions has been 100. Now, your conversion rate would be (100/1000)*100, which is 10%.

How Is Conversion Rate Optimisation Done?

Keeping a tab on our conversion rates month on month provides us with clarity on if we are getting better or worse in converting users into paying customers.

Let us say in month 1, you have a conversion rate of 10%, and in month 2 that has gone down to 6%. Now we have hard data that cannot be ignored that your website has converted less in month 2 than in month 1.

We can now deep dive into the problem and try to hypothesize what the core issue could be:

  1. Has anything gone wrong with our page’s speed that is making our users’ experience worse? Research showed that website conversion rates drop by an average of 4.42% with each additional second of load time, between 0-5 seconds.

  2. Are there any distractions on the page? Any unnecessary pop-ups, or CTAs (call to action) that distract the user from taking your desired action?

For example, research showed that removing the share to social buttons improved conversion rates by 11% .

  1. Does the information hierarchy of the page make it easy for the user to understand what our product/service is all about? Are we bombarding them with too much information too early? Are we leaving the good parts too late? Check out this article on how visual design has an impact on conversion rates .

Working on the above steps and a lot of others is what the process of CRO (conversion rate optimization) looks like.

To understand Conversion Rate Optimization better, let's look into Spotify's business model

Let us look at another example If we understand what conversion means in the context of Spotify, it would be -

a) Conversion event 1: Get users to convert to sign up to their freemium service where the users try out their basic, limited, ad-supported service.

Denominator: Website visitors

b) Conversion event 2: Get users to convert to full-time subscribers for unlimited premium service.

Denominator: Freemium signups

Website visitors= 100

Freemium= 60

Premium= 10

Conversion Rate 1: 60%

Conversion Rate 2a = Premium Signups / Freemium signups

Conversion Rate 2a= 10/60 =

Conversion Rate 2b = Premium Signups / Website visitors

Conversion Rate 2b= 10/100

Kraftshala:

Leads

Test

SOP

Enrolments

And Spotify has proven to be optimizing its conversion rates since as early as 2015. Why I say, that is because -

Number of Spotify premium subscribers worldwide from 1st quarter of 2015 to 1st quarter of 2022 (in millions)
If we consider data from four years, 2015 to 2019, Spotify jumped from 70 million active users to 217 million active users, out of which 100 million were premium subscribers.

For an industry (freemium business model) with an average of 1% conversion rate, Spotify made quite a massive leap of 46%!

And this is what conversion rate optimization means. They found areas that they could improve on, which led to optimizing Spotify's conversion rates.

Why Is Conversion Rate Optimization Important?

You see, when we talk about improving our conversion rates, say, by driving traffic to our websites, our goal is not solely to generate traffic but get them to convert as well. And Conversion Rate Optimization helps us in doing just that!

Let’s understand that by diving deep into one industry - B2C companies that have a freemium business model

For this particular industry, how we calculate conversion rates would be -

Conversion rate = (Free active users/Paid users)*100

Here, a conversion rate of 1% is considered to be pretty standard. But that’s not all.

To give you context, let’s go back to 2015.

For comparison, let’s look at other companies with a freemium business model.

Dropbox - had a conversion rate of = (6.5M/162.5)*100 = 4%.

Google Drive - had a conversion rate of = (1M/200M)*100 = 0.5%.

Evernote - had a conversion rate of = (6.15M/150M)*100 = 4.1%.

Spotify - had a conversion rate of = (20M/75M)*100 = ~ 26.6%.

Dropbox’s 4% conversion rate was considered to be a “really good conversion rate” as stated by Jason Cohen.

And then came Spotify disrupting the industry’s conversion rate at a sweet 26.6%. Basically -

Spotify’s conversion rate disrupting the industry
And today, if we compare their conversion rates -

Dropbox = (free active users/premium users)100 = (15.48M/700M)100 = 2.2%

Google Drive = (1M/1000M)*100 = 0.1% <can’t find data>

We can’t find Evernote’s because their business has gone downhill

And Spotify stands at = (182M/422M)*100 = 43.1%

All of this data points toward one direction: Spotify has been optimizing its conversion since as early as 2015 and has continued to grow while others have lost out on optimizing their conversion rates.

Conversion Rate Optimization works like a navigating tool. CRO is the process that makes your website a conversion machine. A MACHINE. And no, we're not kidding.

For instance, let's look at Spotify's conversion rates again over the years. They embodied the term "conversion machine." Spotify's active user base has grown from 75 million in 2015 to 422 million today - all while gaining 182 premium users. And this wouldn't have been possible if not for conversion rate optimization.

What Spotify did was pure experimenting and seeing if it stuck with its users.

Signing up to Spotify
Such as the integration of signing up with Facebook. It led to a frictionless signup experience where the users did not have to create a separate account for Spotify. This was one way of optimizing Spotify's conversion rates, and there are more .

So, conversion rate optimization is crucial because it gives you insights into where most of your traffic comes from. This insight alone allows you to look for ways to improve your website experience for your users.

Conversion Rate Optimization also helps you cut down your costs of customer acquisition. It helps you push down the consumer funnel with existing resources. It is the tool that doesn't mess with your budget and gives you more with less. CRO is your giver friend.

All of these determine the long-term, sustainable growth of the website and the product/service you are offering. Hence, Conversion Rate Optimization is an essential part of your business plan.