What is cost per conversion?
Cost per conversion is a metric that calculates the cost of getting one new customer or turning a lead into an actual sale.
This calculation can be done during any marketing campaign and helps gauge its effectiveness and determine how much your business has made or lost.
Cost per conversion is crucial in calculating marketing campaigns' efficiency and effectiveness, planning and forecasting, and identifying improvement opportunities.
How to calculate cost per conversion?
To calculate cost per conversion, you will need to know the total cost of your marketing campaign and the number of conversions.
Here's the formula:
- If a company spends $1000 on a marketing campaign and it results in 100 conversions, the cost per conversion would be $10.
You can calculate it as follows:
$1000 (Total Cost of Campaign) / 100 (Number of conversions) = $10 (Cost per Conversion)
You can also use this metric to compare the cost per conversion of different marketing channels by dividing the cost of each channel by the number of conversions generated by that channel. This will help you identify the most cost-effective channels for conversions.
Why is it essential to measure cost per conversion?
Measuring cost per conversion is essential for several reasons.
First, when it comes to marketing campaigns, every business, from startups to established brands, should be able to measure its return on investment (ROI). By comparing the cost of acquiring a customer with how much revenue that customer generates for your company down the line—whether through purchases or other means—you can determine whether you’re getting bang for your buck and make any necessary adjustments.
Second, it provides a way to compare the effectiveness of different marketing channels. By measuring each channel’s cost per conversion—the amount it costs a company in advertising and other expenses for every new customer it acquires through that channel—a company can determine its most effective ones.
Third, it helps companies estimate their advertising costs. Knowing the cost per conversion allows a business to gather data on how much it would cost to attract a certain number of customers and use that information when creating budgets and forecasts for future revenue.
How to reduce cost per conversion?
There are several ways to reduce your cost per conversion costs:
- Optimize your campaigns: Optimizing your campaigns means testing different ad copy, images, and targeting options to find the best combination of elements that drive conversions while keeping costs low.
- Target the right audience: Segment your audience and create targeted campaigns to increase the likelihood of conversions while reducing costs.
- Use retargeting: Retargeting is a form of advertising that allows you to target potential customers by displaying ads on other sites they visit after visiting your website.
- Test different ad formats: Use different formats for your ads, including video and interactive versions that people can engage with on their mobile devices.
- Utilize automation: Use tools like programmatic advertising to help you reach potential customers more efficiently, increasing your return on investment.
- Monitor and adjust your bids: Keep a close eye on your bids, and adjust them as needed to ensure you're not overspending on specific keywords or demographics.
- Measure and analyze: Measure and analyze the performance of your campaigns regularly; this will help you to identify areas of improvement and make data-driven decisions.
By implementing these strategies, you can reduce your cost per conversion and increase the ROI on your marketing campaigns.
Difference between cost per conversion vs. cost per acquisition
Cost per conversion and cost per acquisition (CPA) are both metrics used to measure the efficiency of marketing campaigns, but they are slightly different.
Cost per conversion (CPC) measures converting a lead or prospect into a customer. It is calculated by dividing the total cost of a marketing campaign by the number of conversions. For example, if a campaign costs $1000 and generates 100 conversions, the CPC would be $10.
Cost per acquisition (CPA) measures the cost of acquiring a customer. It is calculated by dividing the total cost of a marketing campaign by the number of customers acquired.
CPA is a broader metric than CPC because it includes the cost of all the stages involved in acquiring a customer, such as lead generation, lead nurturing, and closing the sale.
So, the main difference between CPC and CPA is that CPC focuses on converting a lead into a customer, while CPA focuses on the cost of acquiring a customer.
CPC is a metric for measuring the effectiveness of lead generation campaigns, while CPA is more beneficial for measuring the effectiveness of customer acquisition campaigns.