The Importance of Assigning Value to Conversions

Entire industries have been built on online conversions. From click-through rate, to lead generation forms, and all the way to purchasing a product online. Conversion is one of the most used buzzwords in digital marketing-and something that can be defined many different ways-and it’s what we all strive for when designing and building our websites. It’s the most tangible method of measurement we can get online, but it’s power is reduced immensely if we can’t decide what it’s worth to us.

As I mentioned, a conversion doesn’t have a strict definition, it’s basically the the action (or one of the actions) you want your users to take on your website. Depending on the purpose of your website, this can vary wildly. For example, if you sell widgets online a conversion would be making a purchase. If your website doesn’t sell anything, but tells customers about a service you provide, a conversion might be generating a lead. You could also have negative conversions, which is trying to prevent your users from taking certain actions. For example, if you have a self-help website for a consumer brand, your goal is to help as many users as possible so they don’t have to call for help, thus reducing the costs of running your call center.

So after we know what our conversions are, we need to decide what the value of that conversion is. Specifically, what is it worth to me to get that sale, lead, newsletter subscription, etc? This step is often overlooked, but is critical when measuring the effectiveness of your campaigns. In some cases it’s easier than others to determine this. If you’re selling product online, the value of a sale is slightly less than the margin you make selling that product. However, when the conversion is not directly tied to a revenue-generating action, it’s not so clear. How much is a lead worth? Ask this question to marketing directors across the country and you’re likely to get blank stares.

Why is this so important? Because it helps you determine if your marketing campaigns are successful or not. It doesn’t matter what your campaign is, if it’s not 100% for brand awareness it should have a goal. Unless that goal has defined value, how do you know if that campaign “worked?” If you spend $10,000 to send out a direct mail, which drives users to a microsite, which in turn gets them to fill out a form requesting a salesperson to call them; how many leads do you need to call that campaign a success? 1,000? 10,000? 100,000?

Once you know what that conversion is worth it’s just simple math. If you don’t know what your conversion is worth, you’re just guessing. As digital marketers we shouldn’t be fans of guessing, not with the tools available to us for measuring effectiveness of our campaigns. Assign a value. If a lead is worth five dollars, then you know you need 2,000 leads to break even on the campaign. And something more than 2,000 to call the campaign a success.

So how do we come to a reasonable value of a conversion? It’s easier in some situations than others. Obviously if you know how much money you’re making when a conversion happens, you know the value of it. But what about when you don’t? What if you don’t have closed-loop tracking in place and can’t tie in when a lead becomes a sale, or for how much. How do you assign a value to a newsletter subscriber, twitter follower, or facebook like? The best answer, use the data that is available to you to narrow it down to the tightest range possible. If we can look at historical data and know that 5% of leads eventually become sales, and that they bring in an average of $1000 per sale, then we know we’d break even paying $50 per lead. ($50 is 5% of $1000)

Note that this, like everything, needs to constantly be monitored and tweaked. For example, you’ll probably have a higher conversion rate the more targeted your campaign is. $10,000 spent on a targeted paid search campaign should lead to more sales than $10,000 on a highway billboard. So use the data you have accordingly.

Being armed with this information gives you a tremendous amount of knowledge about whether or not your marketing is working. Don’t go by gut feel, we as a society are beyond that.

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