Conversion Rate

The definition of a conversion rate is highly dependent upon the context in which it is being discussed, but in the broadest sense, a conversion rate is the ratio of one input measured against a desired set of results or outcomes.

To illustrate this we will examine two sets of occurrences which should be familiar to most readers and will demonstrate the application of conversion rates.

The first use of conversion rates, and probably the best known, is in foreign exchange dealings. This application of conversion rates relates to the quantity of one currency which must be surrendered in order for it to be converted in to another currency. For example one British Pound is worth One Untied States Dollar and Fifty cents. Thus the conversion rate (or exchange rate) is in the ratio of 1: 1.50. In the foreign exchange markets, currencies which are said to be floating, have their conversion rates sent by market forces and depend on the law of supply and demand. The conversion rate for these floating currencies is influenced by the nation's Balance of Payments position, its inflation rate in relation to its trading partners and the perceived stability of the country.

Non-floating currencies or currencies pegged to other currencies (usually the US Dollar) have their conversion rates fixed (usually within a prescribed range) by their governments which take action to keep the value of the currency within its desired range through intervening in the currency markets. The Chinese Remimbi is a good example of a non-floating currency.

Another widespread use of the term conversion rate is in the field of Internet marketing. In this area of commerce the conversion rate measures the ratio of successful outcomes to the number of visitors to a particular website. The definition of successful outcomes will vary between websites but the conversion rate will still measure what the marketers consider to be a successful event divided by the number of visitors to the site. This measure of success is key to determining the viability of advertising and / or maintaining a website and is thus an important management tool. It can also be used as a useful basis of comparison to gauge the success or otherwise of changes which have been made to the website or advertising campaign.