A conversion rate is defined as the percentage of people who actually purchase your product or service compared to the number of people who came to your website by clicking on your Adwords ad. This number is the conversation percentage and the higher the percentage, the more effective your ad campaign. If you have extremely low numbers, you need to do something to increase those numbers such as refine your ads or choose better keywords or websites for displaying the ads.
Google has set up a tool in your adwords account that allows you to do some exact conversion tracking for each campaign and each ad. This tool shows you exactly what your rates are and which ads are performing well so you can discard the poor performing ones. Look for patterns that can give you an idea of what might be going wrong in a certain campaign or ad so you can modify the poor performing ads.
The factors that determine adwords conversion are many. The first step is to get people clicking your ad and visit your site but the ultimate goal is to make people visit your site and buy your product or service or even generate a lead for a future sale. You are failing to convert when a visitor is not signing up for your newsletter or doesn't buy anything from you. Your site layout, design and information provided on it will largely influence your conversion rates. If your site is not user friendly your are very likely to loose a lot of customers due to poor conversion.
It doesn't matter whether you are the worlds number 1 adwords campaign creator if your site is ugly, difficult to use or navigate or is not offering what you stated in the ad you will have very low conversion rates. A fine example of this is the ad that states that a product or service is free only to find out when you go to the site that you have to pay. Make sure that your ad and your website are offering the same thing with the same conditions.
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