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CHI-WEB  May 2001, Week 1

CHI-WEB May 2001, Week 1

Subject:

Re: Conversion Rate Dilema

From:

"Hynes, Colin" <[log in to unmask]>

Reply-To:

Hynes, Colin

Date:

Sat, 5 May 2001 13:07:46 -0400

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (49 lines)

When calculating conversion rates, multiple-item purchases should be counted
as one purchase. This actually is an industry standard used by the folks
like Nielson Net Ratings and others who calculate conversion rates among
different web sites.

If multiple item purchases were counted as more than 1 purchase there would
be a very high conversion rate for sites that sell lots of low-price widgets
while sites like Dell.com may have very low conversion.

Theoretically the lower-priced seller, if they sell enough distinct widgets,
may have more than a 100% conversion rate if you used the "separate items
count as separate purchase" methodology. As you do this, you start getting
further away from the intended meaning of conversion: how many browsers are
converted to buyers in their visit.

To get a good picture of financial success, augment conversion rate with the
following metrics:

--Average order size. The number of orders divided by total revenues.
--Order frequency (a.k.a. repurchase rate). The number of orders divided by
number of customers over a set time period.
--Lifetime value. Similar to order frequency but over and extended period of
time.

The three mentioned above can be used to build a return on investment model
to justify usability or any other initiative.

For example, if you project that you will increase conversion by X%, you
would multiply that percentage by the average order size to come up with a
dollar amount. Then you would take that dollar amount and multiple that
times the order frequency to get a dollar amount over a set time period. To
project that figure out further you would then look at that dollar amount
over the lifetime value of a customer.

Of course, this is just one of many ways to calculate ROI based on the goals
of the project.

Hope that helps.

Colin

Colin Hynes | Director of Site Usability | Staples.com | p. 508.253.0962 |
f. 508.253.9040

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