Mark Ryski, author of the new business book Conversion: The Last Great Retail Metric, explains how tracking your store’s conversion rate—the percentage of people who walk into your shop versus those who actually buy something—can help you identify new sales opportunities.
JCK: Talk to me about what, exactly, a retail conversion rate is.
Mark Ryski: It’s also sometimes called “close rate,” and is simply a measure of the number of buyers versus visitors a store receives. Conversion rate is calculated by dividing the number of sales transactions by traffic counts. For example, if you had 50 sales transactions and total store traffic was 100, your conversion rate would be 50 percent.
JCK: Why is it important that retailers understand conversion rates?
MR: It’s important for retailers to understand both traffic volume and conversion rates in their stores. Traffic is vital because it helps define the sales opportunity for the store. If a store logs 500 traffic counts, then the best it can do is 500 sales—if everyone bought.
Without traffic there would be no way to know what was possible. Traffic count tells us how many people came into the store and conversion rate tells us what percentage of these visitors actually bought. Like batting average, conversion rate is a measure of how well the store is performing compared to the traffic opportunity.
You can’t know how well you are performing unless you know what was possible, and that’s what’s so special about conversion rate–it’s the only measure that can tell you how you performed compared to your traffic opportunity.
JCK: What insights do traffic and conversion rates give into the health of a retail business?
MR: Store traffic is a measure of all the people who visit the store, including buyers and non-buyers. Traffic is a leading indicator that tells us something about a chain’s sales opportunity—more traffic, more opportunity. If traffic is trending up, this is clearly a positive sign. It suggests that the brand is in favor and opportunities abound. The converse is also true. If store traffic is waning, this is disconcerting and it could indicate that the banner is falling out of favor.
Conversion rates also tell us much about a retailers business. High conversion rates mean the store is performing well; it’s doing a great job of serving customers—people are visiting the store and buying. When conversion rates are low or fluctuate erratically, this suggests that the store is missing sales opportunities. People are visiting but not buying. The reasons for why this may be occurring are many and include, improper staff scheduling, merchandising issues, stock-outs, to name only a few. But whatever the cause, the retailer needs to take action.
Regardless of what the sales results show, traffic and conversion data provide critical insight into what’s driving the results and more importantly, and what the retailer can do to improve results.
JCK: You say advertising and promotion lets retailers down. In what ways?
MR: To a great extent, retailers invest in advertising and promotions for one key reason: to drive sales. Unfortunately, looking at sales results to understand the impact of advertising is like trying to measure room temperature with a tape measure—it’s the wrong measuring device.
An advertising campaign can be wildly successful, driving store traffic up dramatically. But if the store is ill-prepared to serve the traffic, and prospects leave without buying, then the investment in advertising will look like a bad one.
On the other hand, if the advertising or promotion doesn’t drive a measurable lift in store traffic, then it’s reasonable to assume that it wasn’t effective. There are no guarantees when it comes to advertising and promotions, but with traffic and conversion data, retailers can understand the impact these programs are having (or not having), and make more thoughtful decisions instead of merely promoting and hoping it pays off.
JCK: Why are retailers under- and over-staffing? What is the challenge there?
MR: Without traffic data, most retailers use transaction counts to help schedule staff. But here’s the problem: Transactions only account for the people who actually bought. What about people who came into the store, wandered around, didn’t get served and left without buying? These visitors are not captured in the sales data because they didn’t buy and the retailer will never even know they visited the store. Without knowing when and how many people are actually visiting the store, retailers can only guess at how to best schedule their staff. Not only does this lead to understaffing and missing sales opportunities, but it can also lead to over-staffing.
JCK: What does your book, Conversion: The Last Great Retail Metric, offer to retailers?
MR: While traffic and conversion have been around retailing for decades, no one has connected the dots for why and how retailers can leverage these insights to deliver better results. This book makes a strong and compelling case for why every retailer—regardless of size or category—can perform better by leveraging insights that come from traffic and conversion data.