ECommerce Conversion Funnel Optimization for Product Managers & Marketing Teams

7 min read

ECommerce is more than simply tossing a retail site onto the web and hoping that customers like it. Successful companies plan their customer journey in order to make it as appealing and easy as possible. Then they use product analytics tools and product data to stay informed and keep iterating as customers, markets, and economic conditions change.

Optimizing your eCommerce conversion funnel is more than just improving a single metric, it’s about creating high LTV customers. Read on and we’ll show you how.

What is an eCommerce conversion funnel?

What is an eCommerce conversion funnel?

An eCommerce conversion funnel is a way to understand the journey customers take on an eCommerce site or app as it guides them towards desired actions, called conversions. The goal of the funnel is to educate visitors, qualify them as buyers, and turn leads into customers – as efficiently as possible.

We’ve all seen a funnel before.  In eCommerce the “funnel” is a useful visual metaphor for capturing the different stages in a buyer’s journey. Moving from the wide top of the funnel to the narrow bottom represents the drop off of potential customers and refinement of their knowledge as they flow through the conversion path, learning more about your site and ultimately making a purchase. 

Conversion tactics are often referred to as upper, middle, and lower funnel, referencing the level of education that a potential customer has about your product and their likelihood of making a purchase in the near future. Obviously, different product analytics strategies are required for reaching users at the top, who are kicking tires, versus customers at the bottom who are ready to commit.

What are the stages of the eCommerce conversion funnel?

eCommerce Conversion Funnel

The three stages of the eComm conversion funnel, leading to purchase at the bottom

Upper funnel users are just starting their research, and may be unsure about technical requirements or exact specifications. They are most interested in collecting general information, and checking out various brands to see which might suit their needs.

Mid-funnel users are aware of popular brands and may have signed up for information campaigns from them. They know more about what they want, and are weeding out choices that don’t offer the quality and value they seek.

Lower funnel users have decided on their favorite brands and are avidly reading reviews and customer stories to see what they will get if they purchase from you. They’ve done their prep work and are just about ready to make a decision.

The ideal bottom of the funnel, of course, is when they purchase from you! 

What is my eCommerce website conversion rate?

Your conversion rate is simply the percentage of site visitors that take the action you want them to take. Conversion ultimately means making a sale, but there are often many smaller conversions along the way:

  • Registering on the site
  • Submitting a form 
  • Telephoning your business
  • Signing up for a free or paid subscription
  • Downloading a piece of content, like a whitepaper or eBook
  • Registering for a free trial 
  • Installing your app
  • Using a new feature
  • Upgrading services

In general, “conversion” simply means a user engaging with your site in any way you wish to measure. In eComm, these engagements all tend to be steps that help turn a prospect into a paying customer. 

What eCommerce conversions should you be measuring with product analytics?

Conversion Rate Optimization (CRO) micro-conversions

Primary conversion events usually follow a series of micro-conversions

If you’re running an eCommerce business, there are hundreds of use cases you can measure, test, and optimize with product analytics tools. You can A/B test your ads, optimize your site to improve your SEO performance, crank out more blog content, and play with just about every aspect of your online marketing. 

That said, some conversion rates tend to be tracked more often than others. Those are often the following:

  • Overall conversion rate measures the raw number of people who convert after visiting your site
  • Marketing channel conversion rate tracks the return from different channels. Does Adwords give you more conversions, or does Twitter?
  • Page conversion rate compares conversion on different pages on your site. A great candidate for A/B testing. 
  • Campaign conversion rate assesses the effectiveness of your various marketing campaigns
  • Individual ad conversion rate lets you see which ads drive the most qualified traffic, and how well changes to them perform
  • Keyword conversion rate tells you which keywords give the best bang for the buck

What are the most important KPIs for product managers to monitor when optimizing an eCommerce Funnel?

Conversion rate

This one is easy. Simply divide the number of conversions you get in a specific time frame by the total number of visitors, then multiply it by 100 to get the percentage.

The formula:

Number of conversions  /  Number of total visitors  x  100  = Conversion rate %

For example, if your site had 500 visitors and 80 conversions last month, your conversion rate is 16%. Most online advertising and analytics platforms can show your conversion rate right in their interface.

Click Conversion Rate

Product teams often wonder: if the same user converts multiple times, does that count as a single conversion, or several conversions? It’s a good question. To capture this difference, companies often call this scenario “Click Conversion Rate,” to distinguish it from the regular conversion rate. The difference is this: Click Conversion Rate counts the number of visitors who convert, while standard conversion rate counts the number of conversions. Understanding CCR is key to reducing churn.

For many businesses, the two will be similar. However, the distinction can be handy in situations where you get a lot of repeat conversions and want to discern what percentage of your actual visitors are converting. To see what percentage of visitors converted, regardless of how many times, you divide converting visitors by total visitors and multiply by 100. 

The formula:

Number of visitors who convert / total number of visitors  x  100  = Click conversion rate

The difference can seem minor but keep in mind that clicks are only worth so much. If they don’t translate into something valuable for your business, you need to make some changes.

Cart abandonment rate

The percentage of shoppers who add items to an online cart but then abandon the cart before completing the purchase. If there is a high rate of customers who leave at the very end without buying anything, there may be a problem with your purchase flow, or you may be introducing new information at the very end of the funnel. (A high shipping rate, perhaps?) 

The formula:

Divide the total number of completed purchases by the number of shopping carts created. Subtract the result from one, and then multiply by 100 for the abandonment rate. For example, if you have 60 completed purchases and 300 shopping carts created, the shopping cart abandonment rate would be 80%.

1 – (x / x) x 100 = x%

Add to Cart Rate

The percentage of visitors who place at least one item in their cart during the session. These rates can clue you in to the success of your product selection, marketing efforts and site usability. They can also tell you whether you’re presenting your products in the most compelling way, or putting your most enticing products front and center. 

Research firm Statista reported that in March 2020, 88.05% of online shopping orders were abandoned. So clearly, making an effort to improve these rates could significantly increase revenue for your business.

The formula:

Sessions with cart item viewed / total sessions = Add to Cart Rate

Customer Lifetime Value

LTV indicates the total revenue a business can reasonably expect from a single account. It compares a customer’s revenue value to the company’s predicted customer lifespan. Businesses use this metric to identify the customer segments that are the most valuable to the company.

The formula:

First, calculate average purchase value, and then multiply that number by the average purchase frequency rate to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.

(Average purchase value x average frequency of purchases) x average customer lifespan = CLTV

Average order value 

This is the average dollar amount spent each time a customer places an order on your website or app. Many companies’ eComm CRO efforts are based on increasing AOV, either by getting people to add more items to their carts, or by enticing them to add more expensive items to their carts. AOV can also be a good proxy for knowing whether you’re bringing the right customers to your site, since ideally you want to attract customers with a higher AOV.

The formula:

Total revenue / Number of orders = Average order value 

Retention Rate

In eComm, retention refers to how often repeat customers come back and purchase more from you. Obviously this has a large influence on LTV. There are lots of ways you can improve retention—by offering more products, giving frequent purchase perks, making the site effortless to navigate, raising your brand’s status, and more. In eComm, retention is often a key indicator of brand loyalty.

The formula:

Number of users who make multiple purchases / number of users who make one purchase = Retention Rate

Repurchase Rate

This is the rate of people who come back and buy a certain item, or the rate of people who come back in a certain time frame. Repurchase and retention can be identical depending upon your type of business, what kind of merchandise you offer, and whether you are selling services or products.

The formula:

You can define your repurchase rate by date—how many customers repurchased within 30/60/90 days—or by item.

Returns

The number of purchasers who return their purchase. Remember, a great conversion rate doesn’t mean anything if everyone returns everything!

Formula:

Track your return rates and multiply them by your expected sales volume in the coming year. 

What are the average eCommerce conversion rates by industry?

According to data from IRP Commerce, here are the top rates from 2019:

  • Agricultural Supplies: 1.41%
  • Arts and Crafts: 4.01%
  • Baby and Child: 0.71%
  • Cars and Motorcycles: 1.36%
  • Electrical and Commercial Equipment: 2.70%
  • Fashion Clothing and Accessories: 1.41%
  • Food and Beverages: 0.90%
  • Health and Wellbeing: 2.02%
  • Home Accessories and Giftware: 1.46%
  • Kitchen and Home Appliances: 1.46%
  • Pet Care: 1.61%
  • Sports and Recreation: 2.51%

(source article: https://www.growcode.com/blog/eCommerce-conversion-rate/)

What does Conversion Rate Optimization (CRO) mean?

Conversion Rate Optimization (CRO) is the process of improving sales by increasing the number of visitors who end up making a purchase on your website. CRO is all about understanding what your customers are trying to do, and figuring out what helps them do it. Many eCommerce businesses overlook CRO, but this is a powerful way to use product analytics data to improve both user experience and sales numbers, because a small increase can easily add up. If you’re currently selling $1,000 per month in product, improving your conversion rate from 1% to 2% would mean an increase to $2,000 per month. That’s doubling your sales!

How do I determine a good conversion rate for my business?

We recommend you take this type of information with a grain of salt, because companies rabidly protect their data. After all, would you want to share performance secrets with your competition? Nonetheless, here are some guidelines:

In 2020, the average conversion rate of e-commerce websites is 2.86%.* The average eCommerce website conversion rate in the US stands at 2.63% as compared to the global website conversion rate of 4.31%.

*Source: https://www.invespcro.com/blog/the-average-website-conversion-rate-by-industry/

Infographic:

https://heap.io/blog/analysis/what-is-a-good-conversion-rate-for-your-eCommerce-business

Long story short, lots of free tools can estimate how many visitors your website receives. What you really want to discover is a desirable conversion rate for what you sell. (For example, better products like expensive consumer electronics will convert differently than low-cost parity goods.)  While it can be tricky to estimate, don’t get too hung up on your industry average. The important thing to emphasize—average is bad! If you’re converting at the average mark, you’re under-performing. You have work to do. 

How do I optimize my conversion rate?

We suggest you think of CRO like cooking. Start with some ingredients, taste, add a few more, then taste and tweak again. Maybe next time you try it with more lemon. Maybe your family hates that version, so you put the olives back in. The goal is constant improvement over time.

Step 1: Define your conversion event—what do you want users to do?

In eCommerce, the primary conversion event is usually some form of “complete purchase.” This event usually marks the end of a series of micro conversions, like “fill out line 14 on this form” or “add item to cart.” Conversion optimization often focuses on improving these microconversions, as each can be a potential roadblock to the main event. 

Step 2: Map your big funnel

After deciding what action you hope to produce, plan out the stages that lead to it. In most eCommerce stores, the conversion funnel is a variation of:

Land on homepage —> Browse products —> Add to cart —> Checkout —> Click “purchase”

Ideally your big funnel should include four to six events.

Step 3: Identify dropoff points—these indicate major opportunities.

If you’re tracking user behavior, you can see where in the funnel users tend to leave. These are typically opportunities for major improvement. Locating these dropoff points is easier if your analytics platform automatically tracks user data. Otherwise, you’ll have to manually track every single event in the funnel. 

Step 4: Go granular—look for the small fixes that yield big dividends.

Examine each click around the dropoff point. Which ones cause most users to leave? Are there any where people get stuck? You should also inspect paths and funnels. When users don’t convert, what do they do instead? You are trying to understand how your typical user base navigates your site.

Step 5: Segment users into both successful and unsuccessful groups.

Behavioral segmentation is arguably the most powerful CRO strategy you can employ. To do it, identify which behaviors that ARE taken by users who convert, but AREN’T taken by users who don’t. And vice versa. Do users who convert read your blog? Leave a review? Click “like”? Save a report? Choose the purple CTA?  When you find behaviors that predict conversion, you can orient your product around getting more users to perform them.

Step 6: Consider your sources and optimize messaging.

Group users by source, search engine, social media referral, and more. If your data shows that website visitors coming from “Accountants Weekly” magazine convert at a 2x rate compared to those who don’t, you can adjust your marketing and landing pages to bring in more “Accountants Weekly” types.

Step 7: Hypothesize, test, repeat.

The key to effective CRO is to be creative and iterate. The scientific method is your ally: make a hypothesis, measure and test the results, then repeat. Learn as much as you can from each test.      

What are some CRO best practices?

The best way to increase conversion is by being scientific and methodical, and that means using data, not relying on guesswork or hunches. Set baseline numbers, then identify your biggest opportunities. Focus on the micro-conversions that lead to your primary conversion events and hypothesize about ways to improve them. Test, measure, and iterate.

The other thing to remember is that conversion is always part of a bigger picture. It’s easy to get excited about increased user activity, but you want to make sure that you don’t lose the forest for the trees—you may improve conversion in one part of the funnel, but that improvement only matters if the change also increases overall purchase rates.

Be aware that it’s almost impossible to do this right without a dedicated product analytics tool. Unless you’re capturing all user behavior and keeping that quantitative data organized, it’s extremely difficult to pinpoint opportunities for improvement or measure the effects of your tests.

To learn more about hypotheses you can ask, download the Heap Book of Questions

What are the limits of free tools like Google Analytics when it comes to eCommerce funnel optimization?

We’ve talked before about Google Analytics’ limits in handling modern data.  When it comes to analyzing even the simplest funnels, GA makes you start from scratch, even if you already have the data. Path analyses are difficult in GA, and GA makes it nearly impossible to segment users by behavior.

While Google has expanded the capabilities of GA, it’s still mostly a tool for measuring traffic to your site, not for figuring out how to improve what happens to people while on your site. For this reason we don’t really recommend using Google Analytics to make product decisions, including optimizing your eCommerce funnel.

Learn more about alternatives to Google Analytics

How can Heap help me get the best understanding of the entire user base through my funnel?

Your funnel is more than just your website checkout. It’s every customer touchpoint that impacts growth/pirate metrics. Heap’s integrations help companies blend multiple data sources, connecting easily with any number of other tools so you can see how user actions affect their purchase decisions on your site and mobile apps.

Shopify is a leading cloud-based, multi-channel commerce platform designed for small and medium-sized businesses to set up instant online stores and track things like purchase data and LTV. The Heap + Shopify integration provides immediate insight into online shopper behavior. With a few clicks, product teams can see where users are dropping out of the funnel, understand which behaviors correlate with conversion, and know which acquisition channels are the most effective. 

Heap integrates with Marketo, Autopilot, MailChimp, and SendGrid to let you see which email marketing campaigns bring in customers that are most likely to convert. Compare open rates for email messages, campaigns, content, opening lines, or whatever you wish to test, and then use Heap to see how those users behave on your site.

Session recording basically provides a video of what people do on your site. Heap combines with Fullstory to let you create a tracking plan to track user actions and increase user retention by noticing which actions your user base perform repeatedly.

A/B testing helps you verify that more people click the red button than the green one, but the really valuable insight is which group is more likely to make a purchase later on. Heap pairs with Google Optimize, Optimizely, VWO, and A/B Tasty to track the downstream effects of your A/B tests. 

How can Heap help my product and marketing teams optimize our eCommerce conversion funnel?

Simply put, Heap empowers eCommerce companies to answer any questions about how users navigate their funnels. When you’re able to track and analyze everything your site visitors and app users do on your site with a product analytics platform, you can get a thorough understanding of customer behavior, and gain reliable, verifiable data on conversion.

Having granular insights lets you accurately assess customer acquisition and loyalty, and make data-based choices when it comes to your ad spend and website optimization. You’re able to make decisions without waiting for developer resources and release cycles. And you can auto-capture the entire user journey, from acquisition to store exploration to conversion. 

Heap’s eCommerce bundles offer::

  • One-click eCommerce Platform Integrations: Seamlessly tie together data from your web and mobile browsing experiences with data from your Shopify store and A/B testing suite.
  • Best-in-class identity resolution: Heap allows you to retroactively merge all user behavior across various devices and data sources (including offline) to view the entire user journey.
  • Codeless data capture: Heap gives eCommerce teams all the data they need to make decisions about site changes and advertising spend by capturing every touch on the digital journey, including every A/B test and validated Shopify purchases. 
  • Dynamic cohorting: Combine total order values, number of purchases and first touch attribution properties with behaviors that are highly correlated with high AOV, high LTV and improved conversion rates. 

Your eCommerce and marketing teams can hypothesize and answer questions like:

  • What behaviors drive conversion, repeat purchase, and brand loyalty?
  • Does leaving reviews or reading reviews generate higher order values?
  • Where should I allocate my spend based on channels that drive the highest LTV?
  • What site experiments influence the highest initial conversion and repeat purchase rate?
  • What portions of the buying journey are opportunities for wins via A/B testing?

How Casper uses Heap to wake up their eCommerce efforts

Casper, the mattress company called “The Amazon of Sleep,” has one core value—provide the best customer experience possible. Before Heap, Casper had sparse and brittle event measurement with growth efforts focused on customer volume, not their journey. When attempting to use tools like Google Analytics, the Data team quickly recognized that the granular info they wanted was impossible to get. Today, Casper uses Heap for everything from site optimizations and marketing attribution analysis to predictive modeling and beyond.

A/B testing on shipping info increased engagement over 100%

When Casper evaluated their checkout funnel in Heap, they found over 80% of users choose bicycle courier delivery over UPS. The team used Heap to identify areas of high engagement on the product detail page to see if mentioning courier earlier in the process would improve the customer experience. They learned engagement with shipping info in the mattress shop module was more than 5X greater for buyers compared to non-buyers.

With their powerful new analytics infrastructure and months worth of insights, the Casper team is now expanding overseas, using Heap to give everyone around the world a better night’s sleep.

“Heap is the standard that I hold all vendors to and they never live up to it. I feel like we talk to Heap as a peer—someone who is operating at the same level of knowledge and sophistication as we are.”

—Scott Breitenother, VP of Data and Analytics

Conclusion

We hope this article helped explain how your eCommerce funnel is being more than simply your website checkout—it includes any and all customer touchpoints that impact your AAARRR metrics: awareness, acquisition, activation, revenue, retention and referral. Reach out to us and we’ll help show you how Heap can help you reach your business goals.