The percentage of leads that become paying customers.
The conversion rate can be calculated mainly in two different ways (depending on how you calculate conversions):
- Account creation: you count a conversion when someone creates an account in your platform, both it being free, free trial or paying.
- Payment completed: you count a conversion only when someone actually pays you, basically after the lead has gone through the checkout process.
Both ways are correct, it depends on your specific business and what you want to get out of your financial model.
If you think that the value of your business is in the number of customers, then the first method is best, otherwise, if you think that the value is in the revenue from the customers, then the second one is correct.
How to estimate
Estimating the conversion rate for your new startup can be hard, if you have experience with other startups in the same sectors, then use those numbers, otherwise you should look around ar sector averages.
We strongly suggest you to research those numbers by yourself, but, for example the average conversion rate for a SaaS is around 3-5%.
Of course a lot of factors can influence the conversion rate. The most common ones are:
- Free trial: a free trial helps you boost the initial converison rate, but will then have to track how many free trial actually turn into a paying customer (Sturppy helps you do that super easily)
- Free/Freemium: of course free stuff is easier to sell, but then you have to track where and when you customer actually pays you
- Traffic: organic traffic or generic traffic is less likely to convert, while targeted traffic (for example from ads) is more likely to convert, resulting in a higher conversion rate