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Conversion: The Last Great Retail Metric

February 8, 2013 By Mark Ryski
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No retailer argues against conversion and increasingly more are swearing by it. Yet many retailers today still don't measure conversion in all their stores or fully leverage the insights that come from basic store traffic and conversion data.

Part of the problem is that conversion seems to have gotten left behind. The idea of "converting" shoppers into buyers is such a favorite piece of retail shop talk that we should officially classify it as a cliché. Maybe that's part of the problem. This vital metric has been so misused and underused that it's lost its value and, consequently, failed to find its rightful place on the dashboards of retail executives and managers alongside same-store sales and average order value.

Even if you agree that conversion is important, proclaiming it as the last great retail metric may seem to be a stretch … or is it?

Why Conversion is a Great Metric
How many individual metrics make up the universe of retail metrics? Can you even name them all? I can't, but I know there are a lot. The more data retailers collect (and they're collecting more than ever before), the more stuff they have to measure. The trick isn't coming up with new measures, it's coming up with measures that matter. As Dr. Thomas Davenport, author of "Competing on Analytics" and "Analytics at Work," rightly points out, "half the battle is finding the right things to measure …" In retailing, conversion is one of those right things.

Conversion isn't just a critical, vital, useful or insightful retail performance metric, it has the potential to be transformational. How else can you describe the phenomenon where a retailer, even a successful, established chain, can go from never tracking conversion rates one day to making it the cornerstone of how it thinks about and measures store performance the next? That's what I call transformational.

Here are some other reasons that make conversion a great metric:

  • Universally applicable: Regardless of a retailer's size or category, conversion is relevant. While conversion rates do vary dramatically by category, chain and even by store, on any given day conversion can provide a durable and reliable measure of how effectively and efficiently a store is transforming visitors into customers.
  • Conceptually easy to understand: Conversion is a simple measure that compares the number of visitors a store receives to the number of sales made. Even the most junior sales associate can grasp the concept and if she/he can understand it, then your field managers have a better chance of influencing it.
  • Directly connects to sales results: Sales are a function of traffic in-store, the conversion rate (percentage sold) and average order value. That's it. Conversion rate connects directly to sales results. Lots of other metrics don't.
  • Provides insight into lost opportunity: While same-store sales, sales per square foot, sales per employee, average ticket, units per transaction and other transaction-based metrics are obviously important, no transaction-based metric can tell you about the sale you didn't make. Not only does conversion rate tell you the percentage of visitors that purchased, it also tells you the percentage of visitors that didn't purchase — i.e., the lost sales opportunity.

 

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