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How to Calculate Conversion Rate in Retail

What is Conversion Rate in Retail?

In a retail setting, conversion rate is generally understood to be the number of sales divided by the total number of visitors. So, if 100 people entered your retail store on a given day, and 25 of them made a purchase, your conversion rate that day would be 25%. More generally in business, it is defined as the number of people completing a desired action divided by the number of people who that action was available to. The desired action is generally a purchase, but in some contexts it could be making an inquiry or signing up to a newsletter or mailing list. For retailers, sales are almost always the most important metric. 

How to improve conversion rate in retail stores

In retail stores, conversions occur when purchases are made. There are a number of ways you can encourage conversion, and often this involves first building an understanding of customer behaviour. Then, you can tailor the in-store experience to remove barriers to purchase, and to entice customers to convert.

Footfall counting

Footfall counting involves the use of sensors and cameras to track the flow of customers entering and leaving your stores. It can be used to understand the patterns of customer traffic over the course of the day or week. This allows you to understand when your busiest times are, and to measure the impact of changes you make.

Customer journey mapping

Producing customer journey maps at a store or venue level enables you to see how they interact with the in-store environment. You’ll learn where customers tend to linger, and which features they move on quickly from. These insights help you to optimise the customer experience within the store, and to strategically arrange products and displays throughout the store according to where customers tend to dwell, or to engage customers in new parts of the store.

Analytics/behavioural analysis

As well as collecting top level data, drilling down into the detail to find out more about your customers’ behaviour, their purchase patterns, and who they are. When footfall analytics and demographic data about your customers are brought together, retailers are able to get a very strong sense of what will appeal to their customers, and how to persuade them to convert.  

Retail Store Conversion Rate – Why is it Important?

In-store retail analytics are increasingly giving business owners crucial insight into what’s happening in their own stores. Without this key information, ideas about customer behaviors and strategy decisions are informed only by guesswork. One of the key metrics is a store’s conversion rate i.e. the percentage of customers who come into a store vs. the people who leave with a purchase.

It is crucial to measure conversion rate. After all, it’s one of the key indicators of how well a store is performing.

Historically, retailers have concentrated on driving people (footfall) in to stores and increasing the number of transactions, however conversion rate can tell a much more detailed story.

In the following example we look at the difference between transactions and conversions and show how, together with footfall data, conversion rates can highlight missed sales opportunities which can be improved on with small operational changes

Average Transaction Value (ATV) – Conversions or Transactions?

Conversion rates paint a much clearer picture of performance when compared to simply measuring transaction data. Take for example ‘Client X’ who only monitors store performance based on transaction data.

The table below shows that week on week (WoW) transactions and sales has increased but Average Transaction Value (ATV) has remained the same. Suggesting store performance has improved week on week.

Including footfall traffic and conversion rate into the scenario shows a different story. Although footfall increased week on week, the stores ability to convert these additional visitors into buyers decreased by 1.6%.

Therefore, despite transactions and sales increasing the store did not meet its full potential and missed substantial sales opportunities. Had the store maintained its 10% conversion rate the store would have seen $7,500 worth of sales.

Conversion Rate Formula in Retail

The retail conversion rate is fairly easy to calculate – it’s a simple matter of dividing the number of transactions that are made within a period of time by the footfall for the store in that same time period. The result will demonstrate not just the basic numbers but also be able to offer insight into other factors.  For example, high footfall will mean the store is attracting plenty of customers but a low conversion rate – or one that is erratic – will indicate that it is not doing a good job of maximizing sales opportunities.

Store A – Conversion rate across a typical week. The conversion rate is much lower on the busier days, Saturday and Sunday

This could indicate a need to revize staff scheduling, stock availability and goods in stock – and if you do decide to change any of these then the same metrics will once again demonstrate what is working and what is not.

calculating retail conversion rates

The value of conversion

Changes can be made to high-level strategies that influence store layout or product mix. That’s not to say that operational changes can’t have a big impact too.  Take for example Store A’s trading hours broken down for a typical Sunday.

Store A – conversion rate on a typical day. The conversion rate is lowest during the busier times in store

Implementing strategies to improve conversion during the stores busiest hours to lift the conversion can have a significant impact on bottom line figures. For example increasing the presence of shop floor staff during these hours or altering their duties so their focus is client faced is likely to increase conversion. In this example Store A could see an increase of $28,358 per week by lifting the conversion on a Sunday from 5.7% to their average of 7.5%.

Calculating your store’s conversion rate – and knowing what to do with it – could dramatically change the shape of your business.

The stores proven average conversion is 7.5% and during their busiest hours, their conversion success dramatically drops as you can see in the graph below.