(FORTUNE Magazine) – Once in a while You get shown the light In the strangest of places If you look at it right --Grateful Dead

If Archimedes were alive today, he would likely be working for an Internet company (isn't everyone?) and be focused on finding a highly leveraged way to do things better. For those of you who don't know, Archimedes was a Greek inventor born in 287 B.C. who is credited with inventing the lever and the pulley. The reason these two tools are relevant is that both give people the ability to multiply the force they exert on an object to be moved. With the right lever, a human can move a boulder or lift a car engine; both feats would be impossible otherwise.

When analyzing an Internet business, there is one single metric, or tool, that represents a leveraged power similar to that of the lever or pulley. This metric is called the conversion rate: It measures the number of visitors who come to a particular site within a particular period divided into the number of visitors who take action there--for example, make a purchase or register. Though this number may seem rudimentary or simplistic at first, a deeper analysis will reveal that the conversion rate measures many aspects of an Internet site, and that a strong conversion rate offers true leverage to the site owner.

Let's begin with some basic math. Average conversion rates for Websites are in the 3% to 5% range; below 2% is considered poor, while 10% and above is awesome. Think about it: If one in ten visitors to your site actually makes a transaction, you are doing an amazing job. Let's assume you spend $10,000 to drive 5,000 people to your site and your conversion rate is 2%. Those 100 transactions cost you $10,000, or $100 per transaction. Now let's assume your conversion rate rises to 4%. The same $10,000 is now buying you 200 transactions at a cost of $50 per transaction. An 8% rate will give you 400 transactions at a cost of $25 per transaction. As the conversion rate goes up, revenue rises while marketing costs as a percentage of sales fall--that's leverage. That's basic, beautiful math.

But there is more to the conversion rate than mere numbers. The conversion rate also reflects many qualitative aspects of an Internet site. Consider these five important elements of an effective Website:

User interface. Easy-to-use sites have high conversion rates. The opposite is also true: Confusing, difficult-to-navigate sites have horrible rates. If your site requires a how-to manual, you have failed--users will give up.

Performance. Sites that are extremely slow or dragged down by site errors or timeouts will always have low conversion rates. No magic here--customers simply will not tolerate poorly performing or buggy sites.

Convenience. Frequent users value convenient sites, and they drive up conversion rates. Perhaps the best example of convenience is Amazon's one-click service, where a user finds a book or another product and just presses one button to order. All key data (user name, address, credit card number) are automatically filled in from a previous registration. That kind of convenience lets users get in and out of a Website, and unquestionably enhances its conversion rate.

Effective advertising. Clever advertising is one thing; effective advertising is another thing altogether. People will click on clever ads but may not have an incentive to buy once they arrive at your site. Visitors driven by the wrong ads will have high click-through rates but low conversion rates. But ads that properly identify and entice customers in the right demographic will have extremely high conversion rates. The goal is to inspire purchases, not to distract.

Word of mouth. Almost everyone will agree that word-of-mouth advertising, where one customer tells another about a site or product, is the most powerful and cheapest form of advertising. Customers attracted by word of mouth have very high conversion rates. Of course, success begets success: Sites with good user interfaces that are fast, convenient, and have great customer service are much more likely to capture one's attention and therefore be mentioned via word of mouth.

In other words, the conversion rate is a single metric--make that the single metric--that captures all these aspects of a high-quality Website. Some people focus on advertising click-through rates or cost per lead, but these numbers are inconclusive. You know the old cliche: You can bring a horse to water, but you can't make him drink. Any Website can woo visitors with cool ads--only solid Websites can turn the visitors it wooed into paying customers. The conversion rate reflects this total user experience, while metrics based on advertising alone do not.

Are there any problems with conversion rates? There are a few, but nothing that should preclude you from making this the No. 1 metric in your company. First, keep in mind that conversion rates for new customers tend to be low, while those for returning customers are much higher. Watch them both, as well as the blended rate. Second, remember that seasonality affects conversion. Most retailers saw conversion rates double during the Christmas season as determined shoppers went online. Lastly, keep an eye on profitability. Anyone can drive conversion by cutting prices. However, this customer relationship is temporary (which helps explain why this practice is known as renting customers).

Any serious Internet CEO should be aware of his company's conversion rate. Small increases in it can have unbelievably powerful effects on a company's performance. What's more, focusing on the rate will help improve all elements of a company's business, including performance, convenience, customer service, advertising effectiveness, and word-of-mouth advertising as a percentage of sales. So forget all the talk (including some in this magazine) about other metrics and focus on the only measurement that truly reflects a site's effectiveness. Archimedes would be proud.

J. WILLIAM GURLEY is a partner with Benchmark Capital, a venture capital firm. Except as noted, neither he nor Benchmark has a financial interest in the companies mentioned. To receive an expanded version of Above the Crowd, visit www.news.com, or to subscribe to the e-mail distribution list, please send an e-mail to subscribe-above_the_crowd@atc.revnet.com. If you have feedback, please send it to atc@benchmark.com.