A new way to calculate conversion rate: the DOVATE formula
This is what I have found after 2 years on this topic. And those 5 parameters can be combined in a magic way to calculate Conversion Rate from . That is the DOVATE formula.
I am very interested in how to increase conversion rate. Usually, conversion Rate is seen as #Conversions / #Visitors. But that explain just the result, not how you can increase it. It has been 2 years that I am working and thinking about this topic, and I have found that there are 5 parameters that influence conversion.
Conversion Rate Optimization is probably the most powerful thing you can do on any e-commerce website. Why? Because it is the first thing you do when you develop your website, and because it is a pre-requisite to be able to scale your business. If Conversion Rate is high, you will be able to have a low CAC (Customer Acquisition Cost) and get a large traffic of users. If not, your business cannot scale.
By managing the website Sobus, I have been able to understand more deeply how Conversion is working. And actually Conversion Rate depends on 5 parameters. Just 5. But each of them is important. Those parameters are MECE (Mutually Exclusive & Collectively Exhaustive). That means that they are sufficient to describe the Conversion Rate in an exhaustive way (Collectively Exhaustive), and that they do not overlap each other, thus in a Mutually Exclusive way. I also explain this concept of MECE in my previous article.
And the magic of those 5 parameters is that they can be used to calculate Conversion Rate. Each of those is a value between 0 and 100%. But let’s start by listing the parameters. They are ranked chronologically in the order of the purchase process.
The 5 parameters influencing the conversion
D = Demand
If the person does not want to buy, the Demand level is 0%. If the person has a very strong need or desire, like coming back home after vacation or drinking where there is no water, the level of need will be close to 100%.
O = Offer (availability of)
If the person wants to buy a ticket to come back home from London to Paris, and that this ticket is not available, the offer is not available and this parameter is close to 0%. If a substitute exists, like departure from a city close to London is available, this parameter will become larger than 0%. If the ticket from London to Paris is available, this parameter is 100% for this user. To be more precise, if you want to buy shoes and the website does not have a large choice of shoes, the parameter “Offer” will not be 100%. Amazon has a large offer and thus has an excellent “O” in the DOVATE formula.
VA = Value (perceived)
The Value is similar to the quality/price ratio. If it is very high (let’s say : free candies), the value can be close to 100%. On the opposite if the user thinks the price is too high and/or quality too low, he will not do the conversion and the ratio will be close to 0%. For example, a ticket where there are 3 stops or where the duration is excessive can be perceived a low quality. As it is defined, perception is just the perception of one person, based on his knowledge, experience, desire, etc.
Perception is not reality, even if, in marketing, I like to say that perception is reality because the understanding and belief or each of us go through a filter of perception. Let me give an example. If many people buy mineral water in plastic bottles, it is because some think it’s good for health even if it is stored during weeks in a petroleum derivative and transported from mountains to big cities by truck with a negative impact on global warming. But you don’t see this on advertisement of mineral water.
Keep in mind that there are some competition and substitutes (like train or carpooling instead of bus). And never forget that the market is not perfect : a big part of consumers do not know that there can be better products for the same price. The market of wine bottles is a good example. When a beginner has to choose a bottle in a supermarket, he has to guess the value or taste of the wine by looking at the bottle.
T = Trust
If the user does not trust the seller, because the website looks suspicious, seems not serious or has bad reviews, he will not do the conversion and the trust level will be 0%. On the opposite if the user has trust from word of mouth or from previous purchases, trust level will be very high. For example, Amazon, Uber or Airbnb have high trust levels. People do not compare prices while sometimes other websites can offer a better deal. Trust is built also throughout the purchase funnel, starting from the landing page to the validation of the payment, and even after through client service.
E = Ease of use (perceived)
In the ideal world, the payment would be done with ONE click : no form, no credit card, very easy to cancel purchase. That would make the perceived ease of use close to 100%. But most of the websites are not so simple, for several technical reasons : they do not have access to personal data nor payment information (which is, in some way, not a bad thing). Each step in the purchase funnel adds friction in 2 ways: time and complexity. So each step decreases the perceived ease of use. And the longer the purchase, the lower the ease of use is. At some step the client can be lost, will want to check something on another website, or simply will do something else (phone call received, SMS received, need to go to work, etc). Any of these will stop the conversion process.
But the shorter is not the better: if the purchase funnel misses one step or explanation, it can appear complex. So there is a good balance between too short and too long. The ideal is all mandatory steps, and only those mandatory steps. Ease of use also means making the technology of the website compatible with most of the devices (any smartphone, screen size, any OS version, etc.).
The DOVATE Formula of Conversion Rate
The Conversion Rate can be computed thanks to this formula :
Conversion Rate = D x O x VA x T x E
That looks simple and it is, as each of the 5 parameters are MECE. Each parameter is a percentage that impacts directly the Conversion Rate. In the ideal scenario, all parameters are at 100% and Conversion Rate also. If any of the Demand, availability of the Offer, perceive VAlue, Trust and Ease of use is 0, there will be no conversion. What does it mean? Simply that to have a good Conversion Rate, you must be good on each of the parameters. Oh, but wait, there is a good news : the Demand level does not depend on the website. So you have to care only about the 4 others.
Quantification of the parameters
It is complex to quantify those parameters, but possible to approximate for some of them:
- Demand : It is the most difficult to quantify as it is intrinsic to the user and there is no way to guess how interested he is.
- Offer (availability of) : It could be quantified by measuring the number of products you have compared to the number of products that exist on the market, in a given category.
- Value (perceived) : One way to estimate the quality / price ratio, is to do a comparison of prices for a serie of products or services on your site and on other websites. But that will not take into account the perception of the user.
- Trust level : Bounce rate is a good indicator of trust on the landing page of your website. 25% bounce rate could be interpreted as 75% of Trust level. But it is only a partial indication as trust is necessary during the whole purchase process until the client validates his payment.
- Ease of use (perceived) : That could be estimated from the duration spent for the first purchase and the next purchases. Ideal ease is 100% with ONE obvious click, no interface to understand, no character to read/write, no waiting, etc.