What Does Conversion Rate Mean?

Published: 23rd December 2009
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You may be wondering what all the talk on the internet surrounding
conversion rates means. A conversion rate is just a percentage that is
based on how many visitors a website receives for every sale that is
produced. Conversion rates play an important role in developing
pay-per-click advertising campaigns because an understanding of the
significance of these rates will help when developing strategies that
will consistently make money.
For the sake of an example, let us say that an affiliate is utilizing
Google Adwords to market a program that helps people earn an income
from their home computer. For every 100 clicks they purchase, they make
one sale, or "conversion". That would mean that their conversion rate
is 1%.
It is now time to analyze the data in order to understand its
significance. If it costs them $15 to purchase those 100 clicks, and
they tender a $20 profit from every sale, they are making a $5 net
profit per conversion. In order to maintain this conversion rate, they
must continue to drive targeted, high-quality traffic towards their
website. The affiliate would be foolish to think that they could
purchase bulk, non-targeted traffic and expect to realize this same
conversion rate.
Conversion rates increase in importance the longer that the campaign
remains active because if the 1% rate is maintained for an entire
month, there is little doubt that the campaign is performing
consistently. After a month of steady conversion rates, the affiliate
would be wise to purchase more traffic through Adwords for this
campaign because they will make exponentially more money, without
incurring any additional risk.
The above scenario displays the importance of gaining a decent
understanding of how conversion rates work. This is why savvy
affiliates start small when implementing Adwords campaigns. After a
campaign proves its merit, they will then increase traffic in order to
maximize profits. It is amazing how that one small statistic can mean
so much when creating Google Adwords campaigns that are assured to
result in making money.

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