The best startup metric: Conversion rate?

Bill Gurley says conversion rate, which measures the number of visitors who come to a particular Web site within a particular period divided into the number of people who take action on that site (purchase, register and so on), is the most important metric, not share of habit. “No other single metric”, he argues, “captures so many aspects of a high-quality Web site in a single number”:

  1. User Interface:  Sites that are easy to use have high conversion rates.
  2. Performance:  Sites that are extremely slow, or those that exhibit errors or time-outs, will always have low conversion rates.
  3. Convenience:  Some users want to get in and out as fast as possible. These frequent users value convenient sites, and frequent users drive up conversion rates.
  4. Effective Advertising: ads that properly identify and entice customers in the right demographic that are poised to purchase will have extremely high conversion rates.
  5. Word of Mouth:  Referred customers have a high conversion rate.

Quick comment: The problem with a rate is that it can fall if the denomenator (for example total visitors to your site) is artificially boosted, when that just means you have a larger funnel of people to convert to your true goal-metric.

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