Imagine you have a small online business. This month 200 users signed up on your website, and 10 of them bought your $ 800 service. Great! You’ve made $ 8k of income. How much should you expect to make this year?
The straightforward answer is $ 8k * 12 = $ 96k. But how confident should you be? Will your conversion rate always be so close to 5%? You could pad the estimate ±20% for safety, guessing at $ 77k to $ 115k. If $ 77k would cover all your expenses, should you feel secure?
This is a question of binomial probability. Using our favorite binomial confidence interval calculator, the 95% confidence interval for your conversion rate is about 2.5% to 9%.
With a confidence interval that wide, you should expect to make somewhere between $ 48k and $ 172k. Yikes! You could end up with half of your simple guess, and that’s if your business doesn’t change.
These confidence intervals are very informative, but turning to a calculator for every metric is tedious. If you’ve got hundreds of metrics across dozens of dashboards, it’s downright unsustainable.
Fortunately, the math for calculating confidence interval is simple to implement:
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