Measure Cost per Conversion and Conversion Rate

Contributors

@jamaicawinshipgmail-com


Business Benefits

Improve budgeting, forecasts, and results.


Define what a conversion means to your business.

There are dozens of conversion goals in digital marketing, but most fall into one of these 10 categories:

  1. Purchase.
  2. Form submission.
  3. Sign up / Subscribe.
  4. Clicking a specific button.
  5. Create an account.
  6. Content shares.
  7. Follow on social media.
  8. App install.
  9. Event attendance.
  10. Phone calls.

Depending on your type of business and goal, you may use one or a combination of conversions in your marketing.

Think about what conversions you plan on measuring. We’ll how to determine what you should pay for a conversion in later steps.

Calculate your conversion rate by using this formula: Conversion rate = Number of Conversions / Number of Visitors x 100.

  • Example: 10 leads / 50 Visitors = 0.20 or 20% conversion rate.
  • Example: 22 sales / 2000 Visitors = 0.011 or 1.1% conversion rate.
  • Example: 91 calls / 750 visitors = 0.12 or 12% conversion rate.

Higher conversion rates allow you to spend more money to acquire a customer or lead because each dollar put into advertising ends up being more profitable.

Check your conversion rates in each of your advertising or analytics platforms.

Depending on your advertising and analytics platforms, where you go to determine conversion rates will vary.

In general, you’re looking for two numbers. The first is usually going to be traffic, which can be expressed as Traffic, Link Clicks, and Landing Page Views. The second is the conversion action that you’re measuring such as leads and purchases.

Once you find these metrics, use the formula in Step 2 to calculate your conversion rate.

Below is an example from Facebook’s Business Manager. There were 979 Link Clicks and 81 Website Leads for a conversion rate of 8.3%.

Conversion rates can be important to know as they tell you how often an action is taken. You can use this number to improve your entire marketing funnel through testing and conversion rate optimization. The landing page with a higher conversion rate is the one that will deliver conversions at a lower cost.

In the example above, the top Facebook had had a conversion rate of 8.3%, and the second ad had a conversion rate of 0.16%. The difference is dramatic!

Use your conversion data to determine your cost per conversion.

The specifics of where you’ll go to find these numbers will vary by platform. In this example, we’re using Facebook Business Manager to look at the number of leads and the total amount spent, to determine the cost of a conversion.

Here, you can see that conversions are displayed as Results, and the metric being tracked is leads. The Amount spent is also displayed.

To calculate the cost per conversion, use this formula: Cost per Conversion = Amount Spent / Results. Here the cost per conversion in the first row of data is $372.40 / 6. This equals $62.07.

Keep in mind that the cost per conversion formula isn’t limited to sales. It can include any desired action that a prospect takes.

  • Example: $100 advertising cost/5 sales = $20 cost per conversion. It can also be said as Cost per Sale.
  • Example: $500 traffic cost/100 leads = $5 cost per conversion. It can also be said as Cost per Lead.
  • Example: $748.57 ad costs/42 Calls = $17.82 cost per conversion. It can also be said as Cost per Calls.

Determine your target conversion rates and costs.

There’s no one-size-fits-all metric for target conversion rates and conversion costs. These figures will vary by industry, platform, and company. You can check resources that benchmark conversion rates for various platforms to see if you’re in line with the averages.

Regarding the ideal cost for a conversion, this metric will also depend on where this conversion is in the funnel. Modern digital marketers are comfortable acquiring customers at a loss because they are confident that they can turn a profit as they ascend and upsell a customer. However, this ideology may not apply to your business.

Discover what you can do when you know your conversion rate and cost per conversion.