Successful retailers spend millions of dollars designing and manufacturing products, developing effective distribution and logistics systems, and building physical and virtual environments for customers to shop. Surprisingly, most do not know or measure their conversion rate.
Essentially, conversion is the measurement of the transition of prospective customers into satisfied buyers. As such, conversion is the final link in the supply chain and a comprehensive indicator of the organization’s ability to satisfy customer needs effectively.
There is no secret to calculating conversion rate; it is the ratio of “shopping units’ or potential customers visiting a store, to the number of transactions made during a designated time period. Technology can accurately identify and count “shopping units” and factor out non-shopping entities such as associates, vendors, and other pass-through traffic. Equipment can intelligently collect data from a variety of retail configurations, including multiple entrances, floors, and remote registers.
A properly measured conversion rate will provide an accurate account of browsers-turned-buyers. Conversion increases when the customer experience is positive and decreases when customers are not satisfied.
Despite the simplicity and value of this metric, few retailers use it to identify specific performance improvement opportunities. While most companies have adopted individual measurements, such as in-stock position, approach time, and average transaction time to improve sales, few employ a comprehensive tool to measure overall operational effectiveness.
Myths concerning this tool abound. Some of the more common include:
MEASURING CONVERSION RATES IS DIFFICULT. Measuring conversion rates is quite simple to do on a regular basis. Once monitoring equipment is properly installed and calibrated and the initial base measurements are created, the ongoing accurate collection and analysis of data is neither difficult nor time consuming.
MOST RETAILERS KNOW THEIR CONVERSION RATE. Unfortunately, most do not. Due to lack of understanding or a disorganized approach to data collection and calculation. most retailers do not know their true conversion rate, and are often shocked to discover how low it actually is.
COUNTING SHOPPERS WITH BAGS IS ENOUGH. This is a common belief, and worse yet, a common tactic. Asking associates to “count bags” typically leads to inconsistent and erroneous information collection. Conversion rates vary and are sensitive to a variety of internal and external stimuli. The accurate collection of data. necessary to maintain the viability and usefulness of conversion as an overall performance metric requires more sophisticated and inclusive techniques.
AN INCREASE IN SALES MEANS WE ARE DOING WELL ON THE SALES FLOOR. Retailers typically judge performance by increases in sales volume. However. how effective is a retailer who is enjoying a 10 percent sales increase while foot traffic has increased 100 percent? Attention to conversion rates provides a more comprehensive awareness of customer satisfaction levels than any other performance measure. Store conversion rate is impacted by all activities in the retail supply chain and should, therefore, be shared within the entire organization.
IF WE HAVE A FIXED CONVERSION RATE, THERE IS NO NEED TO CONTINUE MEASURING. Conversion rate is impacted by a variety of factors including type of merchandise, season, holiday periods, promotional activity, weather, and time of day. Rates can also be affected by merchandise location, visibility and accessibility, staff scheduling, and customer service. Measurements should be ongoing and take all variables into account.
RETAILERS WHO PURCHASE PEOPLE COUNTING EQUIPMENT USE IT REGULARLY. Most owners of counting equipment fall into two groups: those who own the equipment and have never employed it properly and those who have purchased and installed it, but pay little attention to the data it generates. Properly calculated and consistently measured conversion rates provide the basis for sales improvement opportunities.
A PROFITABLE METRIC
Proper conversion rate management has the potential to drive sales further than you might expect. For example. a one point increase in a 27 percent conversion rate (not unusual for a Mass Retailer) would equal a 4 percent increase in sales revenue. Driving conversion is one of the most profitable strategies your business can employ.