How to estimate conversion value

When estimating value-per-conversion, it’s often strategic to think about things like repeat business, word-of-mouth, and lifelong customer value. Factoring in these values can offer you the pliability to bid higher while confidently bidding below your value-per-click. Let’s check out a fictional business-to-business machinery company named Example Machines to ascertain how this works. instead of selling directly online, Example Machines uses AdWords to get leads for its sales team. We’ll factor that in too. Short-term conversion value for instance Machines

  • Average deal revenue: 3,000
  • Profit margin: 45%
  • Leads that convert to a deal: 20%
  • Value-per-conversion (short-term): 270 (3,000 * 45% * 20%)


Factoring in word-of-mouth

Example Machines have data showing that for each customer they usually gain 15% in additional business through word-of-mouth. Here’s how we factor that in:
 

  • Value-per-lead (short term): 270
  • Gain from word-of-mouth: 15%
  • Value-per-conversion (+word-of-mouth): 310.50 (270 * 115%)


Note that we multiply by 115% instead of 15%.  This is because we are amplifying again as opposed to a loss.

Factoring in lifetime customer value

Lastly, Example Machines knows that each new customer makes repeat purchases worth approximately 5,000 in revenue over their lifetime. It’s easiest to factor this into the initial deal value.

  • Average deal revenue: 3,000
  • Repeat business over lifetime: 5,000
  • Profit margin: 45%
  • Lifetime profit-per-customer: 3,600 (3,000 + 5,000) *(45%)


Then we can factor back in how many leads convert to a deal and word-of-mouth gains:

  • Lifetime profit-per-customer: 3,600
  • Leads that convert to a deal: 20%
  • Gain from word-of-mouth: 15%
  • Lifetime value-per-conversion: 828.00 (3,600 * 20% * 115%)


How this enables more strategic bidding
Let’s assume 5% of clicks convert to a sales lead and see how this affects our value-per-click:
 

  • Value-per-click (short term): 13.50 (270.00 * 5%)
  • Value-per-click (+word-of-mouth): 15.53 (310.50 * 5%)
  • Value-per-click (lifetime): 41.40 (828.00 * 5%)


Notice how factoring in full conversion value enables Example Machines to consider a broader range of profitable CPC bids.

Conversion value challenges
Many factors can make it difficult to estimate conversion value in practice. Some examples include:

• A hotel chain where inventory is restricted by time and available rooms

• An e-commerce site where customers look for one product, then purchase another

• Business services where deal sizes can vary from thousands to many dollars

• Subscription services where a replacement customer may enrol during a range of offerings over time

 Even in cases where estimating conversion value is difficult, it still could also be possible to use an estimated range for your likely conversion value, or conservative estimates for factors that are difficult to trace. for instance, if you’re intuitively confident that gains from word-of-mouth represent a further 20-30% useful but you lack definitive tracking, employing a 15-20% conservative estimate is usually more helpful than using no value in the least. Choosing your conversion value, it’s important to use a way that creates sense for your business and advertising objectives. Short-term conversion values are often useful once you want to maximize immediate profit or customer acquisition as cash flows allow. Lifetime conversion values are often more useful when trying to maximize future growth. When choosing a conversion value, it’s important to choose a way that aligns together with your goals.

Conversion Rate

What Is A Conversion Rate?

The conversion rate is that the number of conversions divided by the entire number of tourists

for instance, if an eCommerce site receives 200 visitors during a month and has 50 sales, the conversion rate would be 50 divided by 200, or 25%.

A conversion can ask any desired action that you simply want the user to require. this will include anything from a click on a button to creating a sale and becoming a customer. Websites and apps often have multiple conversion goals, and each will have its own conversion rate.

Why Your Conversion Rate is Important

 Tracking conversion rates allows you to live the performance of your sites and apps.

Understanding what percentage of your users are completing the goals that drive your business allows you to measure the success of your site or app and identify areas for improvement.

Improving your conversion rate also allows you to urge more sales with an equivalent amount of traffic. If you’re spending $1,000 a month on advertising to drive 500 visitors to your site if you double your conversion rate you essentially double the worth of your ad spend. you’ll then crop on your ad spend and obtain an equivalent benefit as you were getting before, or invest the extra revenue into new ad programs.

How to Improve Your Conversion Rate?

The process of identifying conversion goals, calculating their conversion rates, and optimizing your site or app to enhance conversion rates is understood as conversion rate optimization or CRO.

CRO is completed by formulating hypotheses for why visitors aren’t converting and arising with ideas for improving conversions, then testing those ideas through a process called A/B testing, during

which two versions of a page are tested against one another to ascertain which one performs better? By continually identifying new conversion goals, identifying areas where your conversion rate is often improved, and implementing tests of latest features, you’ll continuously improve the performance of your website or app.

Conversion Rate Optimization in Action

A real-world example of CRO is captured during this case study from ComScore, an internet analytics company that gives marketing data to enterprises. the corporate started by setting a conversion goal from their product page (leads generated), determined the conversion rate, then found out an experiment with different ideas for improving the conversion rate of the page. The hypothesis that they came up with was that they suspected including testimonials on the page would increase visitor trust and cause more conversions. They also tested a version of the page that included both testimonials and therefore the logos of the businesses providing the testimonials.

Through this A/B/N test, they found that the version of their page with testimonials and logos performed 69% better than their original page.

this is often a transparent example of how a corporation was ready to improve their conversion rate through testing and have a measurable impact on their business.

Boost Your Conversion Rate with Optimizely

Optimizely is the leading platform for A/B testing and conversion rate optimization. Installing Optimizely is incredibly easy, and requires just installing one snippet of JavaScript on your site. Once Optimizely is enabled, the visual editor allows you to form changes to your website or app with none coding or developers required. Launching experiments is as simple because the click of the button and Optimizely will automatically display visitors’ different versions of your site to visitors. Once an experiment is about up, Optimizely’s advance statistical engine will tell you when a test has reached statistical significance, in order that you’ll confidently report whether a change performs better or worse than the first. Best of all, Optimizely is totally liberal to try. Just type in your website address below, and begin testing with Optimizely today!

Share This