What Is the Payment Conversion Rate?
Typically displayed as a percentage, payment conversion rate is a metric that most businesses measure and seek to improve, especially so online. It usually illustrates which proportion of customers who begin an online purchase go on to complete that purchase, and sits on the opposite end of the spectrum from customer churn rates.
Businesses typically track a number of different conversion rates. The payment conversion rate usually refers to the percentage of people who begin a financial transaction, for example by providing personal details or adding an item to a cart, and then continue that purchase to completion.
However, for some companies, the payment conversion rate simply measures how many site visitors go on to make a purchase, or variations of these two.
Improving payment conversion rates is an important priority for ecommerce sites. Some studies suggest that almost 70% of shoppers abandon their online shopping carts. As such, any step taken to improve conversion rates can make a notable difference to the bottom line.
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How Are Payment Conversion Rates Calculated?
There’s no hard and fast rule for how to calculate a payment conversion rate. Each company has its own interpretation and its own way of doing the calculation.
However, that calculation always looks at the number of customers who have completed a purchase over a certain time period. This is then divided by the total number of customers who visited the site, added an item to their cart, or took another step that is deemed to indicate intent to purchase.
In December, 50 customers completed a purchase. During the same month, 200 people added something to their cart. 50/200 = 0.25 Multiplied by 100 to get a percentage, the payment conversion rate would be 25%.
Similarly, if a company wanted to calculate a conversion rate based on the number of site visitors:
In December, 50 customers completed a purchase. During the same month, 1000 people visited the site. 50/1000 = 0.05 Multiplied by 100 to get a percentage, the payment conversion rate would be 5%.
Each individual merchant decides exactly how to calculate their conversion rate. For example, some may choose to factor in website sign-ups, or segment conversions by product or geographical area.
What Affects Payment Conversion Rates?
Essentially, anything that frustrates a shopper, causes customer “insults”, or makes them no longer want to purchase can have an impact on payment conversion rates. This is often referred to as friction.
High-friction factors, which can have a negative impact on conversion rates include:
- website glitches and poor performance
- usability issues and unclear instructions
- a lack of appealing delivery options
- excessive loading times
- a poor selection of available payment methods
- time-consuming card security measures – e.g. 3-D Secure procedures can result in abandonment rates of up to 20%
- a poor mobile experience, making it hard to complete purchases on a smartphone
- false declines – which occur when a legitimate card payment is rejected
- other types of false positives, which block a shopper’s actions and require them to attempt the action
- anything that interrupts the shopping journey
Types of Payment Conversion Rate
Payment conversion rate outputs can be tweaked to show exactly the data each company needs. Businesses can choose one or more specific calculations to drill down on the data they need to monitor and the metrics they wish to improve on.
Types of payment conversion rates can include:
- completed sales measured against total site visitors
- the percentage of people who “add to cart” and then go on to complete a purchase
- the percentage of people who click “check out” following a shopping session and then go on to complete their payment
- the percentage of customers who complete a sign-up process and become paying customers within a certain time window
Why Is the Payment Conversion Rate Important?
Payment conversion rate has a direct impact on a company’s bottom line and profitability. In a sense, it defines and describes how profitable a company is or can be. Anything that makes customers abandon their cart and leave the shop is a wasted opportunity to make a sale and add to the client base.
The payment conversion rate provides a useful top-down way to track how changes to website design, shopping journey, and user experience can impact sales. For example, an online store can compare before and after conversion rates when there is a change to the check-out process, or when it implements a new card security procedure.
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How to Increase your Payment Conversion Rate
Here are some tried and tested ways to increase payment conversion rates:
- Make the check-out process as frictionless as possible – or consider dynamic friction.
- Provide an extensive range of payment options.
- Ensure your online store is fast and reliable, including at times of heavy traffic.
- Offer fast and economical delivery options for physical products.
- Deploy efficient fraud prevention tools that do not cause churn.
- Ensure purchases are simple to complete when using both mobile and desktop browsers.
- Consider supporting BNPL options and other up-and-coming payment enablers.
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